Obama, McCain and the Stock Market

Posted by: Ben Steverman on October 24, 2008

People love to argue politics. And one way of making those arguments is to claim that the stock market agrees with you.

Here are a few examples from the past two months:

CNBC’s Jim “Mad Money” Cramer in New York magazine:

There is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression.

Cramer’s CNBC colleague Charles Gasparino in the New York Post:
“As it looks increasingly likely that Obama will be [the next president], the markets are casting a vote of “no confidence.”

Felix Salmon strongly disagreeing with Gasparino:

He reasonably blames much of the current financial crisis on “a lack of leadership from Washington” — but somehow manages to convince himself that it’s Obama’s leadership which is lacking, rather than Paulson’s or Bush’s.

And on Sept. 4, Jim Tamny of RealClearMarkets said the stock market was “booing” John McCain’s choice of Sarah Palin as his vice presidential candidate. He wrote the Alaska governor was such a poor choice that “markets concluded last week that whatever John McCain’s true economic views, on Friday he handed the election to the anti-growth candidate,” Barack Obama.

The stock market never explains why it goes up or down, so these arguments are impossible to prove or disprove. Still, there are plenty of misconceptions regarding investors and the political process. I took a crack at some of these in an article called “Five Myths About the Election and the Stock Market.”

Myth No. 1: The stock market is waiting to see who wins.
Myth No. 2: Wall Street is disappointed at Obama’s lead in the polls, because it always wants the Republican to win.
Myth No. 3: Investors and traders are watching the election closely, following the candidates’ proposals and rhetoric.
Myth No. 4: The market is alarmed by prospects the capital-gains tax rate could be raised.
Myth No. 5: Wealthy investors can breathe easier because the next President wouldn’t dare raise income taxes in a recession.

Read it all here.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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