Does the stock market really care whether Obama or Romney wins tomorrow?
We're in the midst of a very heated presidential race. And, once again, predictions are rolling in that the stock market will perform better of Romney wins, since it stands to reason that Republicans and their pro-business policies will help Wall Street and, by extension, investors.
On the other hand, there are those that point out (and even Fox Business had a story on it) that historical charts show that stocks (and ordinary investors) fare better during Democratic presidential terms.
But does it?really matter? Here are some things to consider:
The Stock Market Isn't the Economy
Many of us look at the stock market for a quick and dirty idea of what's going on in the economy. More specifically, we often look at the Dow Jones Industrial Average for indications of what is happening in the economy. This is a rather interesting way to consider which way the economic winds are blowing, since the Dow consists of only a small portion of stocks available. On top of that, short-term, stocks are volatile. Basing long-term investing plans?(and, perhaps, long-term economic policy) on what the stock market seems happy about today seems like a poor way to go about things.
Presidential Campaign Promises Don't Equal Actual Policy
It's also important to remember something about presidential campaign promises: The don't always equal policy. Almost everything any presidential candidate wants to have happen requires Congress to turn it into law. While pundits argue over who?really?deserves the credit for economic growth and stock market performance during a presidential term (perhaps the policies of the predecessor, just now taking full effect, deserve the credit/blame), the truth is that we give presidents waaaaay too much credit.
The reality is that Congress has to pass the laws. That means that a president can suggest ideas, but no president can actually “fix” the economy. It's a nice thought that a president can do all these things, but the reality is that once a president is in office, policies have to be tweaked — and sometimes Congress flat out refuses to go along.
How We Feel About Things Matters More
In the end, the stock market is about perception. How we feel about the situation matters more than what a president does or does not do. Stock market performance depends on our behaviors. If we feel good about what's happening, we go out there, take risks, spend money, and the stock market improves. If, collectively, we feel uncertainty, the opposite happens and the stock market drops.
Of course, how we feel about things can depend, in part, on who's president, as well as what Congress is up to. And, of course, there is the 24-hour news cycle and the Internet, and noise everywhere. These things influence our collective psyche as well, and can affect what happens in the stock market.
While the presidential election can influence how people feel about the situation, and that can, in turn, affect stock market performance, a president's stated policies may not matter so much.
What do you think? Will it matter to your investments if Romney wins instead of Obama?