Wall Street prefers Republicans, McCain supporters argue. But stocks have done better under Democratic presidents, Obama supporters fire back.
When it comes to the stock market – especially this turbulent market – does it really matter who is elected president?
Yes and no. Politicians do influence the economy – and they'll play a big role in how the country emerges from this current crisis. But analysts say neither candidate can be a cure for what's ailing Wall Street.
“The economy is a big, big machine, and the president is one government bureaucrat,” said Ron Florance of Wells Fargo.
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Moreover, most analysts believe the battered stock market has nowhere to go but up next year, no matter who ends up in the White House – and history will probably give the victor credit even if he actually had little to do with the rally.
“The timing couldn't be better,” Florance said.
Still, the stock market is just one part of the economy, and under either Barack Obama or John McCain, the U.S. needs to recover from a downturn whose severity has not been determined. And either candidate will face a budget deficit of around $500 billion when sworn into office – a shortfall expected to climb to $1 trillion next year.
“This whole financial crisis will largely serve as an agenda buster for at least the first year,” said John Lynch, chief market analyst at Evergreen Investments.
That's not to say there aren't differences in the impact McCain or Obama would have on U.S. businesses, and in turn, their stocks. Robert Froehlich, an investment strategist at Deutsche Bank, said it's likely that under Obama, the alternative energy sector would do well, and possibly the paper and steel industries if he enforces trade treaties. And under McCain, Froehlich said, it's likely that big energy companies would do better because he does not support a windfall profits tax, and that financial companies could benefit because of his stance on dividend taxes, long-term capital gains taxes, and estate taxes.
There are historical trends one can draw between presidents and how the stock market performs. The question is how seriously to take them.
The Dow Jones industrial average and the broader Standard & Poor's 500 index have posted larger returns during the terms of Democratic presidents. But this statistic doesn't prove Democratic policies boost the stock market – the major indexes have also done better under a Republican Congress than a Democratic Congress.
Another pattern is the stock market's apparent four-year cycle, described by market historian Yale Hirsch in his Presidential Election Cycle Theory. The theory says the market does well in a presidential election year, badly in the year after the election, then improves until the next presidential election. This pattern has held up for most of the century, though it's being tested in the terms of President George W. Bush.
However, the monetary policy of the Federal Reserve, rather than the influence of the president, can explain this pattern better, according to a 2007 study by CFA Institute Education managing director Robert Johnson, University of Wisconsin professor Scott Beyer and Northern Illinois University professor Gerald Jensen. Their study found the Fed has tended to lower interest rates in the latter half of presidential terms – and lower interest rates encourage borrowing and spending.