Market Selloff Due to Presidential Polls ?

If you ever wanted to see proof of the political bias of some pundits, today is the day.

Its the Monday after many weekend polls have shown McCain closing the gap between himself and Obama. Quite a few polls show he has drawn to a dead even draw, and even the lead Obama has in many polls is within the margin of error. One poll has McCain up 5%.

At mid-day Markets are off by > 1%, with the Nasdaq taking the biggest hit, down almost 2%, with the Dow down by 200.

Now, you might think we would be hearing a discussion — any minute now — that the market is reacting negatively to the polling data. This would be the ideal time to launch into a polemic about why this means the market doesn’t like McCain. This theory could be backed up by showing the vastly disproportionate political donations made by Wall Street to Obama over McCain.

Only you won’t . . .  Not because, as we have shown time and again, that its an awful, disingenuous argument. No, you won’t hear it because its a fake thesis put forth by pure partisans who know a lot less about markets than they do politics.

Remember this discussion when some polls show McCain sliding and the market selling off.

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Assorted Presidential Polls Assorted_polls

via Real Clear Politics

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Previously:
The John McCain Market Selloff (March 07, 2008)
http://bigpicture.typepad.com/comments/2008/03/the-john-mccain.html

Stock Market Politics & the McCain Market Rally (March 07, 2008)
http://bigpicture.typepad.com/comments/2008/03/mccain-market-r.html

Pricing in a Bush Presidency (July 2008)
http://bigpicture.typepad.com/comments/politics/index.html

Source:
General Election: McCain vs. Obama
RealClearPolitics 2008
http://www.realclearpolitics.com/epolls/2008/president/us/general_election_mccain_vs_obama-225.html

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What's been said:

Discussions found on the web:
  1. Jeff M. commented on Aug 25

    Barry – NO LIE. You are reading my mind today. I was just thinking the VERY same thing (hence, my crankiness) and was going to post a comment on it, but didn’t want to go off topic.

    I wonder why the media isn’t blaming McCain drawing even in the new polls for the market’s drop today? Instead, I’m sure we’ll hear the markets are dropping because of the Dem convention.

  2. Jeff commented on Aug 25

    I like Larry but Kudlow is the worst at doing it.

  3. Jeff M. commented on Aug 25

    Kudlow once asserted the markets went up one day because Don Imus was fired. No kidding….

    That was the day I stopped listening/watching Sir Goldilocks.

  4. VennData commented on Aug 25

    Great post.

    If an enterprising mathematician would run a regression on poll changes and that day’s… week’s… etc… market behavior and publish it, than we can have a statistically-based study to point to that shows it.

    Count on Simons at Renaissance Technologies, or D.E. Shaw, and others have already done this and found no significance.

  5. Whammer commented on Aug 25

    Jeff M. — that is priceless, and of course you’re right!! The selloff has nothing to do with McCain, it is the anticipation of the Obama bounce associated with the Democratic convention!!

    It would be funny if I was sure it didn’t work………

  6. Michael commented on Aug 25

    Well said! My sentiments exactly.

  7. The Financial Philosopher commented on Aug 25

    Causation or Correlation?

    Labor Day is unofficially the real beginning of the presidential race. If there is any causation of today’s market action resulting from politics, it may be more a function of the uncertainty of the election itself as it comes into full view and not necessarily a function of any particular candidate…

    …however, there is no reliable way of tying the polling data to today’s market action so it seems fruitless to spend any energy or make investment decisions based upon it…

    The thought does make for interesting blog topics, though…

  8. GreenMachine commented on Aug 25

    I think the correlation between the election and oil prices is far more interesting. IMHO no way gas/oil cheaper this time next year. Long CCJ (McCain) and PBW (Obama) and TRN (Pickens).

  9. DL commented on Aug 25

    Today’s market action has nothing to do with the Obama/McCain contest.

    However, I do think that the stock market would react differently to each of the following outcomes after November 4th:

    (a) Obama win + 60-seat majority by Dems in the Senate; or

    (b) McCain win + 55 (or fewer)-seat majority by Dems in the Senate

  10. me commented on Aug 25

    I never understood why investors supposedly favored republicans when the markets go up more with democrats in charge. You would think the lost decade of would have changed some minds.

  11. Lord commented on Aug 25

    The reason you don’t hear it is it doesn’t conform to the participants bias.

  12. Donkei commented on Aug 25

    If there is a correlation between the overall political zeitgeist and stock market performance, I’d say it would be the result of political uncertainty.

    Markets don’t care who pulls the political strings. But they do care whether or not the pulling is predictable, otherwise a greater uncertainty premium is due.

    Since we are dead sure to get some sort of new administration in the fall, I’d say the markets could be wavering just on that, regardless of which candidate they believe will win. Besides, in a dead heat, how could they legitimately bet the markets one way or the other because of anticipated political outcomes?

    Of course, it could just be ’cause the Olympics are over, and China got more gold medals than the US. There have been stupider reasons for market fluctuations. But that wouldn’t explain the performance of the various Chinese indexes.

    But how about this: The markets are basically manic-depressive. Today, down 300, tomorrow, up 250, etc., but by the end of the week/month, barely changed. It makes for good commissions for brokers, but little else. And there is no good reason for it, except maybe the brokers.

  13. Boo commented on Aug 25

    We all know that the real correlation is between stock levels and the lengths of women’s skirts. That’s why I pay so much attention to this factor.

  14. DL commented on Aug 25

    me @ 3:11:35 PM:

    Much depends on what you mean by “in charge”. Is it the House, the Senate, or the President?

    In criticism of the Republicans, I would point to Hoover (a Republican) who signed the Smoot-Hawley Tariff Act, and of course Nixon who imposed wage and price controls.

    As for 2009, if the Democrats can deliver low taxes, free trade, and inexpensive energy, then I’m all for it.

  15. Namazu commented on Aug 25

    I think you’d agree that trying to explain day-to-day fluctuations in the stock market by ANY single factor is a fool’s game. However, the expiration of the Bush tax cuts on dividends and capital gains would have a material impact on the value of stocks. The near certainty of this happening under an Obama presidency (relative to an uncertain outcome under McCain) should therefore find its way into stock valuations, along with a thousand other factors.

  16. DL commented on Aug 25

    Namazu @ 3:48:28 PM

    I don’t think there’s any way that McCain will be able to prevent a tax increase on cap gains and dividends. But there’s a difference between McCain and Obama on the issue of timing. According to Jason Trennert, there’s nothing to stop Obama from raising cap gains and dividend taxes RETROACTIVE to January 2009.

  17. scorpio commented on Aug 25

    or you could say market tanking because McCain honeymoon of last couple weeks (occasioned by radio silence from Obama on any subject) trending down due to Democratic convention and signs over the weekend that Obama awoke from slumber

  18. mark commented on Aug 25

    Barry
    KRUD-BLOW’s got to talk about something, don’t let the facts get in the way of HIS
    story!

  19. Fiske Silk commented on Aug 25

    I’m sure CNBC would have mentioned it had the polls shifted the other way. That’s one reason Fox Business has no chance of getting off the ground — there usual trick of out-conservativing the competition won’t work against CNBC. You just can’t outflank them on the right without getting into real tin-foil hat territory. Not that Neil Cavuto couldn’t pull that off — but, thankfully — I don’t think there is an audience for it.

  20. matt commented on Aug 25

    Well, noted without comment from the Corner today:

    Are the Denver Dems Downing Stocks? [Larry Kudlow]

    Are the Denver Dems downing the stock market today? The Dow is off 230 points, starting right from the get-go. So-called market analysts are blaming financials and the credit crunch as they always do. But there’s more.

  21. Frank Gifford commented on Aug 25

    There is only one presidential election, and it happens in November. We have learned over the past several elections that ALL early polls are meaningless. I propose we get real, and stop talking about elections in a make believe way, as if they were some kind of ball game. Only one election, and nobody votes till November. Please remember.

  22. me commented on Aug 25

    “Much depends on what you mean by “in charge”. Is it the House, the Senate, or the President?”

    DL I guess I mean the president. When republican presidents are in charge, marekt returns are 8.96% and when a democrat is president the average return is 13.09%, at least since 1928.

  23. jason in charlotte commented on Aug 25

    Larry did indeed go with this theme on his show. His family should be very glad that he doesn’t trade for a living.

    Had the market been up 200, there is no doubt that he would have cited McCain pulling even in the polls.

    I think that politics had Zero influence on the market action Fri or today.

  24. DavidB commented on Aug 25

    I do believe there is a direct linkage between polls and ratings. Especially as elections draw near. Someone should do a study on that. They might be shocked

  25. Doug_S commented on Aug 25

    From Dissecting Leftism:

    Ever wonder why the news media has a hard left bent?

    * General Electric/NBC/MSNBC/CNBC – (88% to democrats)
    * Disney – (86% to democrats) – Walt Disney Studios, Touchstone, Hollywood Pictures, and Miramax; owns television interests including ABC, the Disney Channel and ESPN; runs dozens of local television and radio stations.
    * ABC News – (99% to democrats)
    * BBC International – (62% to democrats)
    * CBS News – (99% to democrats)
    * CNN News – (99% to democrats and Ron Paul)
    * Newsweb Corp – (100% to democrats) – a publisher of ethnic and alternative newspapers in the United States, based in Chicago, Illinois.
    * Cox Newspapers – (100% to democrats) – Publishers of sixteen local newspapers in Georgia, North Carolina, Texas, Florida, and Ohio.
    * Time Inc – (66% to democrats) – the largest magazine publisher in the US.
    * News Corp – (95% to democrats) – Rupert Murdoch’s global vertically integrated media company includes properties in film, television, cable. (Donor facts provided by Open Secrets)

    Think the internet is more fair and balanced? Guess who manipulates search engine results (aka online headlines)?

    * Google Inc. – (81% to democrats) – Biggest search engine and online news source.
    * Yahoo! Inc – (86% to democrats) – Search engine and online news source.
    * MSN – (91% to democrats) – Search engine and online news source.

    ~~~

    BR: If your argument is that the media is hopelessly leftist, you have come to wrong place.

    However, you might consider an non left/right approach, and instead look at the media from a competency perspective. My opinion is that the media has evolved into something hopelessly lightweight, superficial, and often lacking the skills or budgets to get at the “Truth.”

    But since you printed a string of unverifiable numbers, I prefer that if you post here, you use real sources and links — not just a link to a blogpost (Dissecting Leftism), that cites another blog post (American Daily). This is not what we consider verifiably sourced around here.

    Please note that I fastidiously source and footnote data to its creators (BEA, Gallup, BLS, etc). Then reference any other media (Bloomberg, WSJ etc). I insist on nothing less than the same from posters here.

    Regardless, even if your data were correct, so what? It is very well known that reporters tends towards left of center, while editors tend towards right of center, and Publishers and Media owners tend even further right of center.

    Its also been well documented that the mainstream media is mostly corporate owned.

    (Of course, this is irrelevant to the Market/Polling argument, as is your bias claim).

  26. howard commented on Aug 25

    barry, do we have to put up with nonsense like that propounded by Doug_S at 8:31?

    but the reason i posted is that you, like so many people (including me until quite recently) misunderstand the margin of error concept when used wrt to polls.

    what most people think margin of error means is that if the “straight” result is 46 – 44 and the margin of error is “2,” then the “actual” could be anything from 47-43 to 44-46.

    but that’s not what it’s about: what the margin of error reflects is the degree of confidence that you can have that the leader in the polls is, in fact, leading.

    so, in the example i gave, if someone has a 2% lead and the margin of error is 2%, what that really means is that there is an 84% chance that the person “in the lead” is, in fact, “winning.”

    i cribbed all of this from kevin drum (and two consulting mathematicians), and you can read more here:

    http://www.washingtonmonthly.com/archives/individual/2008_08/014294.php

  27. Changj commented on Aug 25

    Well to be fair, they’re not exactly blaming it on the news of Obama deciding on VP either.

    Much ado about nothing IMO.

  28. Jeff M. commented on Aug 25

    Of course Sir Goldilocks used this theme (the Dems Convention) on tonight’s show. I wouldn’t have known unless I read this blog, since I never watch his clown show anymore. So predictable! Did I call that one or what? The truly sad part is that many people will believe this narrative.

  29. Jeff M. commented on Aug 25

    @Doug_S: Please give the “MSM has a hard left bent” fallacy a rest. MSM being completely corporatized only cares about its own financial interests like every other business today.

    Years ago, the media had a liberal bias for sure, but today the only bias they have today involves their own corporate interests, period. Please stop perpetuating this fallacy and go back to watching Sir Goldilocks’ show.

  30. Mike B commented on Aug 26

    Where is the data that shows how the stock market performs under a democratic president combined with a democratic house and a filibuster proof democratic senate? I’d like to see some stats to show just how positive that combo would be for stocks.

  31. Tom commented on Aug 26

    Given the misery index, the Republicans may lose power for a decade or more.

  32. Indira A.R. Lakshmanan and Heidi Przybyla commented on Aug 26

    Democrats Convene With Most Advantages Post-Watergate

    Bloomberg: Four years ago, Colorado — a state whose name is derived from the Spanish word for red — was true to that label on the political map. Republicans held the governor’s mansion, both U.S. Senate seats, five of seven congressional seats and both houses of the legislature. President George W. Bush carried the state by 5 points.

    This year, Democrats see opportunity instead of defeat. They are banking on their presidential candidate, Senator Barack Obama of Illinois, carrying Colorado. The party expects to pick up a Senate seat and possibly two in the House, including one in reliably Republican Larimer County, where voters haven’t sent a Democrat to Congress since 1970.

    “There’s a tectonic shift in the state’s politics,” said Matt Ferrauto of the Colorado Democratic Party. State polls suggest strong showings for Democratic candidates running for offices ranging from magistrate to president; this pattern has emerged in almost two-dozen states as Democrats see the best national conditions for their party since the 1970s.

    Seventeen hundred miles away, in the onetime Republican stronghold of Loudoun County, Virginia, Obama has 60 full-time volunteers and 700 part-timers helping out at a Leesburg storefront. The Republican candidate, John McCain, has yet to open an office in the county. In Virginia, which hasn’t backed a Democrat for president in 44 years, Obama has four times more offices than McCain, and state polls show them in a dead heat.

    `Overwhelmingly Tilted’

    “Watergate is the last time things were so overwhelmingly tilted against the Republicans,” said David Rohde, a political scientist at Duke University in Durham, North Carolina.

    Democrats kick off their nominating convention in Denver today expecting strong gains up and down the ballot, even in many historically Republican counties and states. Their optimism is fueled by widespread discontent with the Bush administration, anxiety over the economy, rising Democratic registration, unprecedented turnout in primaries and record fundraising by Obama.

    The political energy is on the Democrats’ side. In a Bloomberg/Los Angeles Times poll published Aug. 19, 55 percent of party voters said they are “very enthusiastic” about their presidential candidate, compared with 29 percent of Republicans.

    Registration Gains

    Even if Obama, 47, and McCain, 71, remain locked in a tight race, the Democrats expect to sweep many down-ballot offices. That confidence is justified, said Jennifer Duffy, an analyst at the nonpartisan Cook Political Report. In the first six months of 2008, the number of Americans who identified themselves as Democrats was 14 percentage points higher than the number who said they were Republicans, she said.

    A poll by Hamden, Connecticut-based Quinnipiac University released yesterday showed Obama in a virtual dead heat with McCain in Colorado, at 46 percent to 47 percent, similar to a July survey.

    Since the last presidential election, Democrats and independents have gained in most of the 28 states — along with the District of Columbia — where voters register by party, as Republican rolls have dropped, state data show.

    In one of the most dramatic examples, in Pennsylvania, more than 380,000 voters changed their registration or registered for the first time as Democrats, while Republicans lost almost 64,000 registered voters, according to the Pennsylvania Department of State.

    Nevada has also seen a shift. Since the start of this year, Democratic registrations grew by 57,000, while Republican numbers increased only by 6,900, according to the secretary of state.

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