The Presidential election in the United States will take place tomorrow, November 2nd. The conventional wisdom – which we hasten to point out is neither conventional nor wise – is that the outcome of the election will matter a great deal to the markets, the economy, for stocks and bonds. Further, the expectation is for litigation-strewn contested result keeping the country guessing for weeks, if not longer.
We disagree on both points. As we have articulated in the past, the President-elect will find himself hamstrung by structural deficits, an ongoing war, fading stimulus, and a retiring baby boom generation, all within the context of a post-bubble environment. This does not leave a lot of room for aggressive policy making on the economic side.
As to the outcome of the election, the “electionomics” – our proprietary analytics of a variety of economic indicators, polls, and other data – suggest at least an outcome (at leats preliminary) will be resolved by Wednesday, November 3rd.
Where does that leave investors? If the incumbent wins, we expect the typical year-end rally to gear up, starting from 1981 on the Nasdaq, 1140 on the SPX, and 10,250 on the Dow. This may even last through the first half of 2005; After that, we perceive trouble. The conventional wisdom – Vegas betting lines, Presidential Futures, etc. – is betting that the incumbent loses; If that variant perception were to occur, we would expect a choppy nervous few weeks with a downside bias. That would provide an advantageous entry point on the long side to trade the next rally. Again, we offer the same caveat – we look for a tradable peak to occur in the 1H of 2005.
Of course, there still exists the possibility of another 2000 style debacle. The difference this time is that we’ve seen this movie before, and know how it ends: A party line vote of the Supremes, with a 5-4 resolution in favor of the incumbent. (You already know how to play that outcome).
So what are the most recent indicators saying?
We already made our “electionomics” prediction back in August, so let’s consider (tongue firmly planted in cheek) the most recent signals: Sales of Halloween masks, and Sunday’s Washington Redskins game. Halloween sales of presidential candidates’ masks, which have accurately called elections since 1980,show Bush leading, 57 to 43%.
But not so fast, say Redskin fans. Since 1933, the Skin’s final home game pre-election has a perfect record in predicting Presidential elections. When the Skins win the last pre-election home game, the incumbent party wins. When they lose, the incumbents get ousted.”
Final score yesterday?
Green Bay Packers 28, Redskins 14.