If presidential opinion polls are to be believed, Americans are sharply divided over whom they want to see win the White House in November. But there’s at least one part of country where the political tilt is firmly to the right: Wall Street.
The old saw is that the financial industry in general, and the stock market in particular, prefer a Republican administration. Republicans are considered friendlier to business, keeping corporate taxes low and business regulation in check.
The financial services industry is by far the biggest source of campaign funding, with individuals and corporate PACs coughing up more than $200 million in the current election cycle. Republican candidates have gotten about 60 percent of that largesse, with President Bush by far the biggest recipient at $29 million, according to the Center for Responsive Politics.
“There’s no question that there’s a Republican bias on Wall Street,” said Alfred Goldman, chief market strategist at A.G. Edwards. “If we were to go out onto Wall Street today and take a vote on the election I think you would find it’s predominantly Republican.”
The 2004 presidential election is no exception, Goldman says.
Wall Street likes lower taxes, and President Bush has pushed through not only income tax cuts but also tax cuts on stock dividends and capital gains. Kerry, on the other hand, has said he will rescind some of Bush’s tax cuts, a plan that could squeeze corporate profits and has not garnered much support on Wall Street, according to Goldman.
“I don’t think Kerry will really be able to raise taxes even if he is elected because Congress will likely remain Republican, and they would put the brakes on that,” he said. “And with the large deficit and the fact that there’s not much money around because we are paying for the war in Iraq, I don’t think there will be much spending on big projects after this election no matter who wins.”
Peter Cardillo, chief strategist at New York retail brokerage S.W. Bach, thinks this year’s election could end up being positive for the stock market no matter who wins.
“Obviously, if we get a Republican administration again it means we will see more friendly legislation toward big business and for the stock market,” he said. “And if the Democrats win, it will probably be good for business too because if the Republicans have control of both houses of Congress we’ll see gridlock, and that’s usually good because it will be tough to change policy.”
The highly unlikely outcome of a Democrat in the White House and a Democratic sweep of Congress would be bad news for stocks, Cardillo said. “Bush’s tax cuts could be repealed, and that would be longer-term negative.”
Kerry has made overtures to Wall Street of late. In an opinion piece published in The Wall Street Journal, the Democratic nominee said his economic plan would create good jobs, cut middle-class taxes and health-care costs, halve the U.S. budget deficit, and restore the U.S. competitive edge and economic confidence.
Kerry noted that since taking office in 2001, Bush has presided over a loss of 1.6 million private-sector jobs, a $1,500 drop in the typical family's inflation-adjusted income and $3,500 increase in its health care costs, falling U.S. corporate investment and exports, a soaring trade deficit, and tax cuts that failed to stimulate growth and caused the budget deficit to balloon.
“Cleaning up President Bush's fiscal mess will not be easy” and requires “tough choices,” Kerry said. In his own economic plan, designed to appeal to middle-class voters, he pledges to end tax loopholes that encourage U.S. companies to send work overseas, institute a tax credit for new jobs and cut corporate tax rates by 5 percent.
Joe Lieber, senior political analyst at research group Washington Analysis, says Kerry’s plan, while it sounds appealing, would be unlikely to pass Congress.
"Everyone knows that if Kerry is elected president he will have at least a Republican House to deal with and probably a Republican Senate, and so this plan is being pushed out in the hope that it will change the message of the campaign from national security and terrorism to areas like the economy, where he is stronger,” Lieber told CNBC. “It’s probably not going to look anything like it does now if he is elected president.”
Although Wall Street has a clear penchant for the Republican party, the stock market actually has done better under Democratic presidents, said Jeff Hirsch, president of the Hirsch Organization, which publishes the Stock Trader's Almanac, a handbook of stock market trends.
According to data compiled by Hirsch, on average in a pre-election year when a Democrat is in power the benchmark Dow Jones Industrial Average has performed a few percentage points better than under a Republican administration. Stocks tend to do better in the two years leading up to U.S. presidential elections than in the two years afterward.
The stock market is a good reflection of the general health of the overall economy, and so a good gauge of how a president’s economic policies are faring, according to Hirsch.
Given the still-lukewarm labor market, things could still be dicey for President Bush in November, says Hirsch, despite his recent lead in opinion polls.
“There’s still time left for Bush, but so far it isn’t looking good,” he said. “You don’t see a lot of presidents getting reelected with this jobs picture.”
October's stock market performance may be a predictor of who will win on Nov. 2, adds Hirsch. “If the Dow is up over 3 percent, no president has ever lost the election,” he said. “But if the Dow finishes the month down over 5 percent, no president has ever won.”