Place Your Bets: Is Wall St. Betting on Romney to Win?
Remember that three-day surge the markets experienced last week? That was weird, right? At the time, we agreed that the surge was most likely prompted by the recent developments in Europe. However, according to one market analyst, there’s a better explanation: Wall St. is betting on a Romney to win the election. In fact, according to Morgan Stanley’s chief U.S. equity strategist Adam S. Parker, “there is no other
reason now to like stocks
than a Romney win,” as CNBC puts it.
“The problem is that it’s impossible to be bullish and right for the right reasons,” Parker said in a note to clients.
“Nearly every day someone expresses surprise that our base case is for the equity market to be down by 10-15 percent. Why is this so hard to believe? The market has had eight 10 percent down moves in the last 12 years,” he added. “We think a better question is why more people don’t forecast that the next 10-15 percent move is down than up?”
He goes on to cite weak earnings and the fact that central bankers “probably won’t be able to continue to save the day as bolstering the case against equities,” as CNBC notes, and adds that “the near-zero interest rate policies from the Federal Reserve and now the European Central Bank, in fact, are weakening the outlook for stock multiples.”
So what’s his conclusion? Investors are betting that Romney will oust President Obama and replace his administration with one that’s more “business-friendly.”
Watch CNBC’s FMHR traders discuss Parker’s call on Mitt Romney:
But as CNBC notes, his conclusion isn’t exactly ironclad.
“Historically, moves higher in the market usually mean the incumbent president is likely to win, while sell-offs simply indicate the challenger is favored,” a recent CNBC report says.
Of course, as Blaze readers who follow our daily “Market Recap” know, the markets sort of play by their own rules.
“Many investors I have spoken with believe that if the S&P 500 should rise between July 31 and Oct. 31, it would signal an impending Romney victory,” Sam Stovall, chief equity strategist at S&P, tells CNBC.
“The recovering market would be a sign that the perceived anti-Wall Street policies of the current administration will soon come to an end, as the incumbent would be replaced and that a plurality on the Potomac might even return as a result of the early November outcome,” he added. “Unfortunately for these presumptive prognosticators, history indicates, but does not guarantee, that the opposite has usually been true.”
Simply put, things are awfully uncertain.
“Things like the European sovereign debt crisis, for example, or the pending fiscal cliff are probably first and foremost in the market’s mind. A slowing global economy probably falls in there as well,” Art Hogan, managing director and head of product strategy at Lazard Capital Markets in New York, also tells CNBC. “It’s hard to know how much the election process is playing into that.”
Although he agrees Wall St. will cast a “decisive vote,” he’s not certain it has made up its mind as to who it favors.
“The fact that the election is so close now speaks volumes about how much we are concerned about the current economic situation in the United States,” he said.
“The conventional wisdom indicates that Wall Street would rather see a fiscal conservative Republican win. That’s sort of a free-market capitalist concept, except for the fact that history doesn’t play that out. What’s typically better for Wall Street is some sort of gridlock.”
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