As a near-term market factor, an unequivocal end to the presidential race has become more important than whether George Bush or John Kerry wins, according to equity strategists. I share the view of most observers that neither candidate would have a sweeping mandate to govern, much less enact changes in economic policy, Morgan Stanleys top economist, Richard Berner, said in a note to clients on Monday.
With a clear winner, apprehension about a long courtroom brawl will end, fears about attacks on the United States to disrupt the balloting will subside, and divisive campaign rhetoric will fall silent. Concerns about another drawn-out legal fight for the presidency is widespread because Democrats and Republicans will have legions of lawyers dispatched across the country to scrutinize the voting, prepared to fight any irregularities.
High price of uncertainty
In the 2000 election, Bush was declared the winner over Al Gore after a 36-day legal recount battle ultimately decided by the US Supreme Court. During that delay, gnawing uncertainty cost the Dow Jones industrial average 700 points.
The Dow ended November 2000 with a 5.1% loss. It recovered a bit in December, rising 3.6%, but for the year it fell 6.2%, the largest annual drop since 1981. Wall Streets long-standing preference for Republicans and known quantities favors President Bush. But Kerry, if victorious, is considered unlikely to do anything to roil the market.
Milton Ezrati, senior partner and economist at mutual fund company Lord Abbett, said he recently told clients that the markets main concern in John Kerry is not that he is a Democrat, but that he is an agent of change. Kerrys rhetoric is more strident than his proposals. He will fiddle with the tax code, but nothing he is proposing is significant to change investor or corporate behavior.
Fred Alger Management issued a bulletin to clients last week saying presidents have less latitude for reform now than before the September 11 attacks on the US. The new landscape precludes any jarring shocks to the market coming out of Washington, the report said. Regardless of who wins...there are fewer choices for the next president and less chance of substantial departures from the current course, said the report, written by Dan Chung, president and CIO, and Zachary Karabell, senior economic analyst.