New Fox News piece: If Republicans Win Big on Tuesday, Stocks Will Go Up

My newest piece at Fox News starts this way:

The economic outlook is bleak. Businesses aren't hiring and the economy has lost 400,000 jobs since May. Unemployment has remained at least at 9.5 percent for 14 months, A record length of high unemployment not encountered since the Great Depression. GDP is growing but the growth is slowing. Consumer confidence is falling; the dollar is falling; the real estate market remains in a slump. And the Obama administration has overseen the 2009 and 2010 deficits at unprecedented levels, accumulating over $2.7 trillion during just two years.

Still, investors sense a glimmer of hope, reflected in rising stock prices. Stock prices have much more to do with long-term expectations of profitability than short-run results. This new optimism likely reflects the rapidly changing political outlook. Stockholders have already been anticipating higher taxes and health care regulations under an Obama administration with basically free rein to adopt whatever economic policy that they want. Now, with Republican victories likely on Tuesday, particularly in the House, predictions are for a more favorable business environment and better economy.

While it is all very intuitively plausible, hard numbers also back up this discussion. . . .

The day of the election: "Expectation of Republican win lifts Wall Street."
The day after the election: "Dow Climbs to Highest Since Lehman, 30-Year Bond Slides on Fed."

This chart from Intrade at 3:50 on Tuesday, pretty much shows that the 60+ win in the house was already anticipated by the afternoon on election day.

The Republicans actually did slightly worse in the Senate that expectations. This chart for the Senate is from Intrade at 3:50 on Tuesday.

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Blogger Mike aka Proof said...

I predict that not only will the stock market specifically and the economy in general improve with a large Republican victory next Tuesday, but I also predict that Obama will attempt to take credit for it, citing the stimulus, his policies, etc.

10/31/2010 6:16 PM  
Blogger Martin G. Schalz said...

Geez, Proof... You just took the words right outta my mouth!

11/01/2010 1:12 PM  
Blogger Al B. said...

You might also want to consider the strength of the dollar vs. foreign currencies. See the following link for a plot of the dollar index for the last 3 years:


Once you have the graph up, plot it against the Dow Jones Industrial Average. You will see an almost perfect inverse correlation. Nearly all of the movement of the stock market over the last three years appears to be attributable to the rise and fall of the dollar vs. other currencies causing massive buying and selling by large investors engaging in a form of arbitrage.

11/01/2010 6:16 PM  

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