The wait is over. The presidential election is complete, and with fears of a repeat of the Gore-Bush 2000 fiasco quashed, the market rallied with the definitive outcome.
Most observers agreed that a swift conclusion to the election, with either candidate taking the prize, was paramount to calming Wall Street's jitters. With the eventual results increasingly clear as the financial world awoke on Wednesday, the markets greeted the news that an election disaster had been avoided with relief. George W. Bush had not only won the popular vote 51% to 48% but also had a stranglehold on the key swing state of Ohio and its 20 votes in the electoral college, vaulting the incumbent back into the oval office for four more years.
"Having a good quick result was a positive," said Lipper Senior Analyst Don Cassidy, noting that the market took off from the open on Wednesday, confident the results were conclusively in Bush's favor. "There seemed to be virtually no further big bump when Mr. Kerry decided to concede."
The potential for a drawn-out count of 150,000 to 250,000 provisional and absentee ballots in Ohio could have led to some uncertainty among investors, but unlike what happened in Florida in 2000, the numbers were more clear-cut from the outset. Bush's challenger, Sen. John Kerry, would have had to have won a significant majority of all of those votes, a feat that seemed insurmountable since Bush held a six-digit lead in votes. Investors seemed to see the writing on the wall and drew their own conclusions even before Kerry conceded the election midday Wednesday. "I don't care how many provisional ballots are out there. You are not going to close a 140,000-vote gap with provisional ballots," said Dr. David Kelly, an economic advisor at Putnam Investments.
"It is good that we have a clear outcome because a lot of people doubted we would have one this soon," Kelly said. "It is also good that the person who won the election carried the majority of the popular vote, too, with a thee-point spread. I think it takes a lot of the election angst out of it." In 2000, Bush won the necessary votes in the electoral college to become the nation's next president, but trailed Al Gore in the popular vote, a point of animosity among Democrats, many of whom felt the shenanigans surrounding the Florida electoral process combined with the failure of Bush to carry the popular vote made his election illegitimate. That wasn't the case this year, as Bush carried both in a very close race nationally.
The immediate impact of a quick outcome is clear: Investors are glad the uncertainty is gone. However, the impact Bush is likely to have on the markets is very different than the influence Kerry was likely to have had if he won, experts say. The President finds himself in an extraordinarily strong position, as he won more than 50% of the popular vote, was victorious in the electoral college and is in a prime position to push his legislative agenda since Republicans picked up seats in both the House and Senate, giving them an even stronger majority in both houses.
Combine that with the fact the Bush-Cheney ticket is not worried about seeking reelection in 2008 and does not have to fret about future political fallout from its actions, and all of the cards are stacked in the President's favor. "It would clearly have been different if John Kerry would have been elected," Kelly said. "He would have been hemmed in by the Republican Congress. With George Bush being elected, he can pursue his agenda pretty much as he wishes."
However, the Republican control of both chambers of Congress and the White House can be seen as a double-edged sword, Cassidy warned. "Wall Street prefers something close to gridlock just so that nothing terribly radical in either direction can actually happen."
Either way, the Bush victory is likely to bode well for stocks, and prove moderately bad for bonds. He is likely to get an extension of the dividend tax cut and capital gains tax cut, which should help stocks. The President also has spoken about privatizing part of Social Security and personal tax-advantaged savings accounts. These initiatives, if implemented, would be likely to help stocks in the short term because they would increase the flow of money into the market, Kelly said.
"However, it's bad for the bond market because if you have a stronger stock market, money will probably switch from bonds to stocks," he said. The likelihood of stronger economic growth going forward due to the alleviation of uncertainty surrounding the election combined with a greater desire for stocks spells further pain for bonds. Merrill Lynch is also predicting the Bush victory will be negative for bonds in the short term but positive for stocks.
All three of the major indices closed ahead Wednesday, with the Dow Jones Industrial Average and the Nasdaq Composite Index up 1% apiece and the S&P 500 gaining 1.1%. However, all three were well off session highs. The markets are likely to continue to be up in the near term, according to Bob Christian, chief economist at Wilmington Trust. Furthermore, stocks have typically responded well to the reelection of an incumbent president. The Dow has gained, on average, 7.4% in the year following a reelection during the 12 times such a feat has been accomplished during the last 100 years.
Now that the air of uncertainty surrounding Dubya and Kerry is cleared, the markets should show some relief, but most experts agree activity in the indices won't skyrocket. "The presidential election was the one issue that the collective public could do something about. It's the one issue that had a calendar date affixed to it," Cassidy said. "That's over, but the other uncertainties go on: inflation, the effect of high energy prices, the constant of the potential for terrorism. This removes the one most controllable source of uncertainty, so I think it should be a positive from here to the end of the year, not a straight line up, but it does remove one issue." And according to Kelly, Iraq, terrorism and the economy are the remaining great unknowns.
Each candidate was also expected to bring a boost to specific sectors, with a victory for Bush good for oil and pharmaceutical stocks and Kerry helping alternative fuel companies and drug companies invested in stem cell research, according to Matthew Patsky, portfolio manager of the Winslow Green Growth Fund.
As for the fund industry as a whole, Cassidy said one key issue to watch will be whether the public in this politically divided country begins to change its ways and become more serious about investing again. "They really haven't been putting much money into equity funds for a while. Maybe it's all driven by performance, but with the presidential race decided and that uncertainty gone, at least one excuse for investors sitting on the sidelines is out of the picture."
