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.
>
Assorted Presidential Polls 
via Real Clear Politics
>
>
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
Monday, August 25, 2008 | 01:30 PM | Permalink
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Comments
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.
Posted by: Jeff M. | Aug 25, 2008 1:39:26 PM
I like Larry but Kudlow is the worst at doing it.
Posted by: Jeff | Aug 25, 2008 2:01:31 PM
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.
Posted by: Jeff M. | Aug 25, 2008 2:10:07 PM
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.
Posted by: VennData | Aug 25, 2008 2:27:07 PM
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.........
Posted by: Whammer | Aug 25, 2008 2:31:23 PM
Well said! My sentiments exactly.
Posted by: Michael | Aug 25, 2008 2:39:58 PM
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...
Posted by: The Financial Philosopher | Aug 25, 2008 2:40:10 PM
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).
Posted by: GreenMachine | Aug 25, 2008 2:56:31 PM
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
Posted by: DL | Aug 25, 2008 3:11:04 PM
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.
Posted by: me | Aug 25, 2008 3:11:35 PM
The reason you don't hear it is it doesn't conform to the participants bias.
Posted by: Lord | Aug 25, 2008 3:21:02 PM
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.
Posted by: Donkei | Aug 25, 2008 3:21:54 PM
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.
Posted by: Boo | Aug 25, 2008 3:25:19 PM
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.
Posted by: DL | Aug 25, 2008 3:26:50 PM
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.
Posted by: Namazu | Aug 25, 2008 3:48:28 PM
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.
Posted by: DL | Aug 25, 2008 4:03:21 PM
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
Posted by: scorpio | Aug 25, 2008 4:03:23 PM
Barry
KRUD-BLOW's got to talk about something, don't let the facts get in the way of HIS
story!
Posted by: mark | Aug 25, 2008 4:05:37 PM
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.
Posted by: Fiske Silk | Aug 25, 2008 5:51:17 PM
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.
Posted by: matt | Aug 25, 2008 5:51:59 PM
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.
Posted by: Frank Gifford | Aug 25, 2008 6:18:06 PM
"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.
Posted by: me | Aug 25, 2008 7:06:14 PM
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.
Posted by: jason in charlotte | Aug 25, 2008 7:23:16 PM
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
Posted by: DavidB | Aug 25, 2008 7:35:16 PM
Iowa Electronic Markets
Presidential Election 2008
See how the real market looks for the election:
http://www.biz.uiowa.edu/iem/markets/data_Pres08.html
University of Iowa Tippie College of Business
Posted by: Bimadene | Aug 25, 2008 8:12:41 PM
