The stock market is so angry at President Obama that it is going to rally hard ahead of his election. That will show him!
That seems to be the tortured logic of Wall Street, which according to a CNBC.com story has decided that the Dow Jones Industrial Average has gained 4 percent in the past week because it has decided that Mitt Romney is going to beat Obama in November.
The spark for the story was a new research note by Morgan Stanley stock-market genius Adam Parker, who believes that everything in the U.S. economy and the rest of the world is horrible, so horrible that stocks should be crashing like it's 1987.
But, ack, wait, they're not. Instead they're rallying, like crazy. How annoying! Stupid stock market.
But no worries: CNBC has a good reason for stocks to be rallying. The only possible reason that stocks could be rallying is that all stock investors are political psychics, like the guy in The Dead Zone, and they have all seen the future, and the future is one in which Willard M. Romney becomes President of the United States. It's just the only thing that makes sense, you see:
"The conclusion Parker draws is that investors are betting that Romney will unseat President Obama and bring a more business-friendly environment to the White House," CNBC's Jeff Cox writes.
Actually, it may be a stretch to put those words in Parker's mouth. I'm not sure Parker is assigning a post-facto reason for the market's rally. That's the job of us dumbass financial reporters! But here is what Parker did say, and it's not too much of a stretch to get from here to what Cox is saying:
To us, the biggest bull case for US equities is based on the huge cash balances and the potential belief that they will be more actively and productively deployed. The biggest possibility here would be Romney winning the presidential election. Our guess is that the market multiple would expand if in fact more investors start believing Romney will win.
Got it. Except, one problem: Romney is not currently winning in the presidential election. He is not leading in the polls. It's close, but given President Obama's leads in key states and some other factors, Obama is a 67 percent favorite to beat Romney, according to New York Times polling guru Nate Silver. Nor is Romney winning in Wall Street's favorite election-prediction market, Intrade, where Obama is a 57 percent favorite to win re-election. For what that is worth.
So, if you were a neutral observer who was convinced that the stock market moves primarily because of what happens in presidential elections, then you might think that maybe the stock market is happy that Obama seems headed for re-election. After all, if Obama is so darn business-unfriendly, then shouldn't stocks be selling off like crazy while he's leading in the polls? In fact, you might even argue that the stock market should be happy to see Obama get re-elected, considering the Dow has soared 64 percent since his inauguration. Or maybe because stocks have historically done better under Democratic presidents, for whatever reason.
But it would be super dumb of you to argue that, according to the Wall Street logic. Because obviously what the market is doing is deciding, 100 days before the election, with Romney trailing by every noticeable measure, that Romney is actually going to win, so it is going ahead and rallying now to get ready for that.
Market guru Sam Stovall of Standard & Poor's tells CNBC that he hears all the time from Wall Streeters that "if the S&P 500 should rise between July 31 and Oct. 31, it would signal an impending Romney victory."
As Stovall points out, however, history vigorously disagrees with this notion. Typically, a stock-market rally ahead of an election leads to the re-election of the incumbent. Again, if stock investors really hated Obama, then they would be selling off to drive him out of office.
Instead, stocks have risen this year, even more than they typically do in election years, and in a pattern eerily similar to other election years in history, according to Bespoke Investment Group.
It is entirely possible, maybe, that stocks don't really care who gets elected in November. It is entirely possible that they have rallied recently because the U.S. economic data haven't been that bad and because European Central Bank chief Mario Draghi vaguely hinted at stimulus to help Europe's economy.
It's also possible that this weird story is an example of the dangers of letting your political biases guide your investment decisions, as Barry Ritholtz, CEO and director of equity research at Fusion IQ, is constantly pointing out.
Lots of Wall Streeters are mad at Obama because he says mean things about them occasionally, because of that financial crisis they caused, which was like five years ago, get over it, gosh. It's OK to be mad at Obama or to vote for Romney. But it's kind of dumb to lose a bunch of money missing out on a stock-market rally -- or to find painfully complicated reasons to excuse that rally -- just because you're mad at Obama.
Related
Before You Go
