As you all very well know, the US elections will take place next Tuesday after an hectic political race for the two contenders. If the consequences of this race for presidency will indeed have a far greater impact on millions of individuals than a simple income change, the economic outlook and program took a major role in the various debates, as the extremely famous "it's the economy, stupid" reminds us. As Governor Romney and Wisconsin vice-presidential candidate Ryan likes to point-out, if the US is slowly paving its way out of recession, it seems to be more of a "jobless recovery" than anything else. The current situation is definitely worrisome : 47 million Americans on food stamps, unemployment at 8% since 2009 and the global financial crisis (according to the Bureau labor of statistics...), a dampened geopolitical role and stance... In this context more and more Americans are looking for facts and measures that are likely to solve their everyday problem : a job and nothing more.
If in the short-term the elections will bring some relief to distressed markets (the elections are certainly a major uncertainty for investors and other market actors) it is quite interesting to have a look at each program and analyze its direct outcome on the economy and the stockmarket (disregarding any other considerations) in the short term - :
The Monetary Policy : Fed Chairman Ben Bernanke has been using an extensive monetary easing policy. With ever-low interest rates thanks to quantitative easing measures (increasing the monetary base by 40 billion a month by buying mortage securities), the strategy has clearly been used to spur growth and restore confidence in markets, in particular in the housing sector. If it is hard to appreciate the success of this policy, as it is not possible to say what the growth and general outlook would have been without it.
The main question behind the Fed is, would Bernanke be reappointed if Romney is elected? It seems quite unlikely after Romney stated in September that Bernanke's QE3 was just "another bailout for the Obama economy". Ideologically as well, the Romney stance seems to stand far from this kind of "public" market intervention. If Romney appoints any other Fed president less in favor of easing policies, it is likely that this will put pressure on bond yields and therefore US bonds will lose their value.
Stock Markets :
Stocks markets are certainly harder to forecast : they are more driven by "market sentiment" and are often disconnected from fundamentals (Recently spanish equities have been rallying on bad economic figures..mainly because markets consider such information as a step forward a bailout). However this Barclays study singles out that market expect Romney's stock markets to outperform Obama's :
If these polls give a good idea of market sentiments on the election, it is more relevant to look at the effect on individual asset classes :
Gold : Based on Obama's win and the continuation of an expansion of the monetary base, we can foresee gold edging higher, even perhaps breaking the psychological resistance of 2,000$ after a possible QE4. It seems as though at this point only further expansionary monetary policies can increase gold prices, trading more or less at a all time high (see below).
Energy stocks : Romney has a free market ideology and is a defender of the "invisible hand" of markets - and has announced that he will increase building permits for exploitation of oil and gas lands. This is certainly a clue towards higher stock prices for exploration and exploitation of natural resources - coal in particular (After his announcement during the 1st debate, some coal stocks increased as much as 7% intra-day).
"Green" stocks : Energy-efficiency companies are likely to take a big hit if Romney wins the race to the White House. After the GFC, Obama pumped almost $50 billion into energy efficiency companies in the form of tax reduction, subsidies and low interest loans. This is likely to end or at least to be drastically reduced under Romney's presidency.
Health care and insurance companies : The termination of Obamacare under a Romney presidency will trim profits and hugely impact stock prices of health care providers.
In general terms, any company or institution benefitting from taxpayers money would be endangered by a Romney win. The GOP actually declared that there is no need to lower interest rates as the housing market should recover by itself, and that he would not have bailed out GM. Even though I have described the main possible impacts of Romney/Obama possible actions if they were to be elected, it is very likely that their actual program do not differ as much as they claim to. In fact, I believe that the stock market and the asset classes I pointed out will react more because of market sentiment more than any actual fact or difference in government policy. If Romney is elected, will he really let GM fail if they were to be bankrupt again? Would the Fed quantitative easing keep on if Obama gets re-elected? It is very uncertain - in the face of adversity and the fiscal cliff, each candidate will have to make major compromises both because of the congress and the overall situation of the US (fiscal cliff and slow recovery).
