The election is currently underway and it seems there are a multitude of different opinions on what may happen if either candidate is elected. Below is a simple synopsis of key issues listed by cause and effect (in order of importance.)
Obama Elected
- Bernanke will not be replaced.
- Stocks up, dollar weakness
- Investors would be concerned about an increase of the capital gains tax in 2013.
- Stocks down, dollar strength
- Difficulty handling the fiscal cliff
- Stocks down, dollar strength
Romney Elected
- Bernanke would probably be replaced.
- Stocks down, dollar strength
- Friendly to big business and Wall Street.
- Stocks up, dollar weakness
- Should be able to handle the fiscal cliff easier than Obama.
- Stocks up, dollar weakness
In my opinion, I think there's good arguments to be made for both a move higher or a move lower in equities regardless of who is elected. The only way a quick move higher could be ruled out is if the election results are undetermined after today and we have to wait for absentee ballots to be counted. Note: I believe Romney's stance towards China is a complete non-issue. His words on China were meant to gain support from ignorant voters. At the end of the day, Romney is a businessman and is not going to sabotage our trading business with China.
Regardless of whether Obama or Romney is elected, we see both scenarios resulting in dollar strength until the fiscal cliff is resolved. There may be an initial pop higher in equities this week; but we anticipate significant dollar strength to begin setting in by next week at the latest. As always, we will have to wait to play the move until we see it; but being ready and knowing what to look for is half the battle. Expectations of market participants should be a lot more apparent by Monday.
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