Markets and the Election: 5 Economists Weigh In


The 2012 Presidential race has focused on the U.S. economy more than any other issue. With 7.9 percent unemployment, estimated GDP growth currently at 2 percent and the Case-Shiller Index showing modest signs of recovery in the housing market, plenty  of challenges lie ahead for the next President.  Barack Obama and Mitt Romney have presented different ideas on how to clear a path to growth in each of these areas.

But what about financial markets? Will one candidate’s policy toward spending, regulation and taxation have a greater impact than the other over the next four years?  To explore this, we asked five prominent economists the following questions. Hint: the fiscal cliff matters.

What is your outlook for U.S. financial markets if Barack Obama is re-elected?  If Mitt Romney is elected?


Tyler Cowen, Professor of Economics at George Mason University and co-author of Marginal Revolution blog.

U.S. financial markets remain vulnerable to eurozone problems, which have not gone away.  The course of those problems does not depend on who is elected President.  The so-called “fiscal cliff” is a very real issue.  Let us hope for a decisive victory by one candidate or the other, rather than a “hung” election or a split between the popular vote and Electoral College.


Ken Simonson, Chief Economist at Associated General Contractors of America

Neither candidate has adequately spelled out how they would deal with the tax code or with spending. Furthermore, these and other decisions that will affect markets depend even more on who controls Congress than the White House. Therefore, there is no way to tell how the markets will perform post-election.


David Hale, Founding Chairman of David Hale Global Economics

The answer depends not just on the Presidential election, but also on the Congressional elections.  If Romney wins, since he is unlikely to raise taxes, the markets will have a positive reaction.  However, if the Democrats have a majority in the Senate, gridlock will occur.  Romney will have a tough time getting any new programs implemented, so the markets will be watching the Senate races as well.  A Republican President combined with a Republican Senate would be positive for financial markets.  However on a longer term view, the stock market has always performed better under Democratic presidents. 

One key negative Romney could bring to the picture is that he says that he won’t reappoint Ben Bernanke to the Federal Reserve in 2014.  That could usher in an era of higher interest rates which would not be favorable to markets.  

If Obama is elected, we don’t really know what he would do about fiscal stimulus this time round.  But Romney has said that he will control public spending, which could starve infrastructure projects and government spending that could be necessary for our overall economic growth and competitiveness. 

It all depends on your time horizon.


Keith Savard, Senior Managing Economist at Milken Institute

I believe financial markets will remain unsettled until the President and Congress decide on a credible course of action to deal with the fiscal cliff and uncertainty over corporate tax policy and healthcare issues. Investors on balance are probably more interested in clarity of agreed policies rather than who authors them given the persistent gridlock that has engulfed the political process for the past few years.  Weaker earnings guidance and continued lackluster economic growth will likely weigh on financial markets as the new legislative cycle begins in January 2013.  


Jerry Webman, Chief Economist at Oppenheimer Funds

The answer is that the markets may react favorably to Romney in the very short term, but they will soon focus on what the make up of Congress means for the fiscal cliff, the Affordable Care Act, and longer term budget issues.  I’d expect risk markets, such as equities, to react quite favorably to evidence that Washington is moving toward a workable compromise on spending and revenue policies that put the federal budget on a stable basis. Investors should always keep in mind that markets evaluate earnings and risks and don’t necessarily follow our political preferences.  There will be winners and losers whoever is elected and investors will be well advised to look at the earnings capacity of companies globally rather than treating the election outcome as determinant for markets.


Read More:

How Futures Markets Fuel Economic Growth

CME Group’s Market Insights page


OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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