Quick Election Results Calm Market Jitters
November 8, 2004
The wait is over. The presidential election is complete, and with fears of a repeat of the Gore-Bush 2000 fiasco quashed, the market rallied with the definitive outcome.
Most observers agreed that a swift conclusion to the election, with either candidate taking the prize, was paramount to calming Wall Street's jitters. With the eventual results increasingly clear as the financial world awoke on Wednesday, the markets greeted the news that an election disaster had been avoided with relief. George W. Bush had not only won the popular vote 51% to 48% but also had a stranglehold on the key swing state of Ohio and its 20 votes in the electoral college, vaulting the incumbent back into the oval office for four more years.
"Having a good quick result was a positive," said Lipper Senior Analyst Don Cassidy, noting that the market took off from the open on Wednesday, confident the results were conclusively in Bush's favor. "There seemed to be virtually no further big bump when Mr. Kerry decided to concede."
The potential for a drawn-out count of 150,000 to 250,000 provisional and absentee ballots in Ohio could have led to some uncertainty among investors, but unlike what happened in Florida in 2000, the numbers were more clear-cut from the outset. Bush's challenger, Sen. John Kerry, would have had to have won a significant majority of all of those votes, a feat that seemed insurmountable since Bush held a six-digit lead in votes. Investors seemed to see the writing on the wall and drew their own conclusions even before Kerry conceded the election midday Wednesday. "I don't care how many provisional ballots are out there. You are not going to close a 140,000-vote gap with provisional ballots," said Dr. David Kelly, an economic advisor at Putnam Investments.
"It is good that we have a clear outcome because a lot of people doubted we would have one this soon," Kelly said. "It is also good that the person who won the election carried the majority of the popular vote, too, with a thee-point spread. I think it takes a lot of the election angst out of it." In 2000, Bush won the necessary votes in the electoral college to become the nation's next president, but trailed Al Gore in the popular vote, a point of animosity among Democrats, many of whom felt the shenanigans surrounding the Florida electoral process combined with the failure of Bush to carry the popular vote made his election illegitimate. That wasn't the case this year, as Bush carried both in a very close race nationally.
The immediate impact of a quick outcome is clear: Investors are glad the uncertainty is gone. However, the impact Bush is likely to have on the markets is very different than the influence Kerry was likely to have had if he won, experts say. The President finds himself in an extraordinarily strong position, as he won more than 50% of the popular vote, was victorious in the electoral college and is in a prime position to push his legislative agenda since Republicans picked up seats in both the House and Senate, giving them an even stronger majority in both houses.
Combine that with the fact the Bush-Cheney ticket is not worried about seeking reelection in 2008 and does not have to fret about future political fallout from its actions, and all of the cards are stacked in the President's favor. "It would clearly have been different if John Kerry would have been elected," Kelly said. "He would have been hemmed in by the Republican Congress. With George Bush being elected, he can pursue his agenda pretty much as he wishes."
However, the Republican control of both chambers of Congress and the White House can be seen as a double-edged sword, Cassidy warned. "Wall Street prefers something close to gridlock just so that nothing terribly radical in either direction can actually happen."
Either way, the Bush victory is likely to bode well for stocks, and prove moderately bad for bonds. He is likely to get an extension of the dividend tax cut and capital gains tax cut, which should help stocks. The President also has spoken about privatizing part of Social Security and personal tax-advantaged savings accounts. These initiatives, if implemented, would be likely to help stocks in the short term because they would increase the flow of money into the market, Kelly said.
"However, it's bad for the bond market because if you have a stronger stock market, money will probably switch from bonds to stocks," he said. The likelihood of stronger economic growth going forward due to the alleviation of uncertainty surrounding the election combined with a greater desire for stocks spells further pain for bonds. Merrill Lynch is also predicting the Bush victory will be negative for bonds in the short term but positive for stocks.