A rumor coursed through New York City on Monday evening that several feet of water were flooding the trading floor of the New York Stock Exchange. It was a false alarm, but Sandy nevertheless kept stocks and bonds from trading again Tuesday. The chaos that the “super-storm” created on the Street this week might be just a trial run for the genuine havoc that next Tuesday’s election could cause in the markets. If you have friends who are brokers or financial advisers, give them a hug. They are going to need a lot of love to survive the post-election storm that sweeps through New York City and every other burg where investors live.
I have seen this coming for a while. The supposedly sagacious market doesn’t know what to make of this election. So for months it has vacillated, uncertain of whether Romney and the Republicans or Obama and the Democrats will prevail. So we’ve had a muddle. One investment advising company that I use tried to cover both options, simply telling me that an Obama win will be favorable to “transportation infrastructure, clean energy technology and hospitals,” while a Romney victory is favorable to “pharmaceuticals, oil and gas, banks and national defense.” Another service I consult assured me that the election will affect my family but didn’t give me a road map to get them out of harm’s way. I’m sure that they didn’t know what to say. But they did want to forewarn me to get ready for trouble.
{mosads}The fear and loathing has been palpable. Ever since the 2008 financial free-fall, the markets have had a severe distaste for politics. Individual investors associate recession and financial instability with politicians, political gridlock, deficits, political parties, Congress, unrestrained spending, nasty campaigns, inane debates and other negative symbols that have been on full display all year. It’s enough to make an investor sell everything and hide the nest egg under the mattress. Is there any safe harbor when a Sandy II is about to drown the entire financial district of lower Manhattan?
Investment advisers have not been able to count on pollsters or pundits thus far to clearly predict winners and losers in next Tuesday’s elections, so some have lapsed back to their own political prejudices and preferences to chart a post-election course for their clients. The big-boy advisers in and around Wall Street would just as soon that Obama won, because that outcome would, they believe, force the Republicans to come to the table and compromise on some tax policies to fence off the “fiscal cliff” that we’re about to plunge off if the budget problems aren’t fixed. The Wall Street cliff-dwellers are a throwback to the late-19th-century Native American ghost dancers, mystically moving in circles hoping for four more years. But out in the rest of America, I would guess that most financial advisers hope that Romney wins, looking for a long-term and market-based rather than politically contrived resolution of our economic woes and recession.
But what will individual investors do next week? (I am speaking of genuine personal stock and bond owners, ordinary people who manage their own investment portfolios and retirement accounts, not institutional investors and account managers.) I fear that many will make big mistakes. If the election outcome hangs in the balance over the weekend and into Monday’s trading, it would not surprise me to see many sell off equities and hold cash or buy gold. If Obama wins, I think many individual investors will immediately sell out of all equities, fearing that the recession will continue unabated. If that occurs, institutional investors might have to follow suit. An Obama win could do far more damage to our markets next Wednesday than Sandy ever mustered.
David Hill is a pollster that has worked for Republican candidates and causes since 1984.