Photo: Flickr / ecstaticist
Tonight, President Obama and Mitt Romney go head to head in the first of a series of three debates before voters head to the polls in November.Both candidates have taken time off the campaign trail to practice intensively for the event, with Obama setting up camp in Nevada and sparring against Democratic Massachusetts Senator John Kerry, who plays Romney in their mock debates.
The former Massachusetts governor, meanwhile, has held practice sessions with his own sparring partner, Ohio Republican Senator Rob Portman, in Vermont, Los Angeles, and Boston.
With anticipation building for the event, here are four things you need to know in order to prepare for viewing this Rocky Balboa-Apollo Creed redux.
1. Wall Street is already preparing for an Obama victory.
With a slew of national polls taken in recent weeks suggesting that President Obama has widened his lead over Mitt Romney, Wall Street, though not the biggest Obama supporter this time around, is bracing itself for Obama to win the election. Traders at hedge funds and investment firms have started emailing their clients telling them to prepare for an Obama victory.
So what does an Obama victory mean for the Street? Presuming the Republicans hold on to the House, it could mean another ugly budget battle between the two parties over the looming fiscal cliff, much like the tough debt ceiling negotiations we witnessed in 2011.
Reported the Huffington Post:
The widespread belief on Wall Street is that Congress and Obama will start negotiations over raising the debt limit and pushing back the fiscal cliff when they return in late November – the so-called lame-duck session, because newly elected members of Congress will not have taken their seats.
Twists in the talks will likely rattle markets as the new year approaches. But if stocks do fall sharply, investors expect that would push Republicans and Democrats to reach a deal.
“Ugly negotiations in the lame-duck session could really throw the market for a loop,” says [Jeff Kleintop, chief market strategist at LPL Financial]. “It could be a painful process for investors.”
2. Expect Obama to stay conservative while Romney goes on the offensive.
With his lead in the polls, Obama does not need a flashy performance at Wednesday’s debate to win votes. He just needs to avoid making a massive gaffe, like when Gerald Ford asserted in 1976 that Poland and the rest of Eastern Europe were free from the yolk of the Soviet Union. His task, as the AP wrote, is simply: “Don’t screw things up.”
Romney, on the other hand, will need to aggressively attack Obama’s economic policies in hopes of producing a game-changing moment that could alter the course of the elections. (Perhaps he could channel Ronald Reagan in once again asking if Americans are better off today than they were four years ago.) But this strategy has its perils, as noted by the Wall Street Journal.
“[T]he difficulty Mr. Romney faces is that the kinds of attacks most likely to change the dynamic of the race or produce a memorable moment also happen to undermine a parallel Romney need, which is to make more voters warm up to him. Even candidates who successfully attack in a debate often make themselves less likable in the process. And Mr. Romney doesn’t have much likability to spare. On the other hand, he has less to lose at this point, which can be a liberating condition,” wrote Gerald Seib of the Journal.
3. The presidential debates will not affect the markets much.
With Wall Street already expecting an Obama victory and pricing in as such, the only way Wednesday’s debate could be market-moving is if Romney does well and improves his chances of snatching victory.
“If the opinion on the results of the election changes because of the debate, it could be a market-moving event,” Art Hogan of Lazard Capital Partners told CNBC. “If there’s an upside surprise in Mitt Romney’s performance here, and you see the spreads in the pivotal states tick up a bit, I think the market looks at that as a positive.”
Otherwise, Hogan says that the debates will play a tiny role. “I just think at this particular time, we have earnings right around the corner, and with the situations with Greece and Spain, there’s just so many macro issues to deal with. The election is one, not first and foremost,” he said.
Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire, agreed, telling Business Recorder that “an ECB- or Spain-related headline out of Europe on Thursday could overcome almost anything that would happen Wednesday night during the debate.”
4. The debates will likely not matter in deciding the president, but the performance of the markets will.
While presidential elections generally score blockbuster ratings for TV networks, they rarely affect the outcome of presidential elections. A Gallup report found that only two debates between 1960 and 2004 — one between Kennedy and Nixon in 1960 and one between Gore and Bush in 2000 — had any significant influence, reported ABC News.
What might be a better prognosticator of election outcomes is the performance of the stock market. In a note, Sam Stovall, Chief Equity Strategist at Standard & Poor’s Capital IQ, and chairman of S&P’s investment policy committee, said that since 1948, the S&P 500 (INDEXSP:.INX) has enjoyed an 88% success rate in determining whether or not the incumbent retains his seat, noted Forbes.
If the S&P 500 registers a gain between July 31 and October 31, then the incumbent will win reelection, Stovall said. If the index suffers a loss in that period, then the challenger prevails.
Specifically, when the S&P 500 stock index rises from July 31 through October. 31, the incumbent president will get reelected. But when the S&P posts a loss during that three-month period, the incumbent will get booted out of the White House.
On July 31, the S&P 500 closed at 1,379.32. The index closed at 1,445.75 on October 2. Obama will have his fingers crossed that nothing disastrous happens to the economy, to Europe, or to China, in the next 29 days.
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