In this column, I'll be making a few predictions about what will happen over the next few days -- first on the U.S. presidential election, and then on the stock market. On that first item, I'll say what I've been saying for weeks, since I first began discussing this in September: President Obama is going to win reelection. He was always going to win.
Why is this? Well, the popular vote is irrelevant, and Obama has more than 270 Electoral College votes, according to most of the swing-state polls. That's enough to win, and this is really all that matters.
In fact, Obama probably will win at least 290 Electoral College votes, compared with what appears to be Governor Romney's projected 248. If he loses Colorado he'll still have 281, and if he happens to win in Florida, he will be pushing 320. Ohio looks headed decisively for Obama, as does Nevada -- I live in the Las Vegas area, up in the mountains, and volunteers from California came to my house twice over the weekend to make sure I'd vote. This was out of an army of thousands; it looked like the other side didn't even show up for the fight.
Away from polls, there are also the betting websites. Back in September, before the debates, Intrade had Obama as a 67%-to-33% favorite. Now he is at 65% to 35%. My sports book, Playcr.ag, had Obama at 3:1 back then, followed by a pop to 4:1 and then down to 2:1 -- and now he's back at 3.5:1. He has never been the underdog on any of these sites -- and, in 2004, Intrade correctly forecast the outcome in all 50 states, according to The New York Times. Speaking of bets, according to CBS News a London book-maker is already paying off bets -- more than a half-million dollars' worth -- on an Obama victory. That's not pocket change, folks.
So Obama is set to win Tuesday -- though he will still have a Republican House and a Democratic Senate. That means more gridlock. Still, as far as equities are concerned, rumors of the imminent demise of the stock market have been greatly exaggerated.
First, for the reasons cited above, most people investing on this issue haven't been betting on a Romney win, even if they may want Romney to win. If your assets have been invested with folks betting on this assumption, you might want to get your money out of there as fast as you can.
More good news: It's likely we've already seen selling from most investors who view an Obama administration as being bad for the market, with only a minority betting on a Romney win. In addition, an Obama victory will mean a continuation of relatively easy money -- a dovish Fed chief and more quantitative easing. Remember, that's largely what got the market to new multiyear highs a few weeks ago.
Also keep in mind that, under Republican presidents, the S&P 500 averaged a 0.4% annual return from 1929 through October 2008, according to The New York Times. Under Democratic presidents prior to Obama, the S&P gained 8.9% on average. When you add the sharp 73% pop in the S&P since Obama took office, the average is considerably higher. So, from an investment perspective, it's not such a bad thing for a Democrat to be in the White House.
Of course, despite all of the above, there could easily be a further pullback following the election. For one, the market is still near the top of its recent trading range. The S&P is still up about 12% for the year, even after the recent pullback, and has risen more than 100% from the March 2009 lows. So if you assume that, overall, we've seen buying on the rumor of an Obama victory, there should be some "selling on the news." How much so is hard to say, but a pullback to the 0.382 retracement of the rally off the June lows, or 1395 on the S&P, should come as no surprise. A 50% retracement at 1370 is also possible. So a likely worst-case scenario would be another 2%-to-3% correction.
In short, those calling for a 15% selloff on an Obama victory are mistaken. There may not be much of a pullback at all. But, whatever it is, within a few days we should see the usual seasonal influences supporting the market into year's end. They'll probably take the market to new highs -- and, no, Obama's reelection, and some modest impending capital-gains-tax increases, won't rain on that parade.
