(August 25 – 12:40 ET) – Although the U.S. election is expected to be a major market force this fall, according to research from Instinet Corp., it really doesn’t matter who wins.
Instinet looked at the composition of U.S. government based on the party in power in the White House, the House of Representatives and the Senate, compared with the returns on the Dow Jones industrial average since 1900. The company concludes that, “when investors set investment policy, the political party makeup in Washington should most often be viewed as a market neutral, or alternatively, rated as cannot be determined”.
There is no statistically significant correlation between the party in power and market performance, but trade policies, fiscal and economic policy, do impact the market. Instinet says the research shows that it is incorrect to associate pro-market policies exclusively with the Republican party. It points out that the 1993 budget accord and NAFTA, both accomplished under the Democrats, sustained the bull market.
Instinet concedes that particular parties may favour particular industries. A Republican presidency is widely viewed as a positive for the aerospace/defence industry. While the Democrats would likely be a negative for drug companies.
“Ironically, the analysis debunks the majority held opinion on Wall Street that a Republican Administration and/or Republican-controlled Congress is always the optimal political climate for the capital markets. It’s not the case,” notes the report. “Instead, the principal factors driving the equity and fixed income markets have been, and should continue to be, corporate profits, monetary policy, inflation, employment trends, consumer confidence, and the dollar.”
-IE Staff