What Will Election Uncertainty Do to the Markets?

Agenda-Setting Financial Insight.
Nov. 6 2012 1:57 PM

What Will Election Uncertainty Do to the Markets?

155053113
The vote could be so close that recounts are necessary and neither candidate concedes for weeks (and ultimately governs with a cloud over his legitimacy). That’s the worst kind of uncertainty for the markets. In 2000, the S&P500 fell 5 percent in the 36 days before Al Gore finally threw in the towel.

Photo by Allison Joyce/Getty Images

Mr. Market might as well concede now to Mr. Uncertainty. Although American polls won’t close until Tuesday evening, neither President Barack Obama nor his challenger Mitt Romney is likely to emerge with a robust mandate. It doesn’t take a worst-case, state-by-state recount scenario to foresee market gridlock.

As Americans head to the voting booths, the election looks too close to call. RealClearPolitics’ polling average shows Obama winning the popular vote by 0.7 percentage point. And on the measure that matters - the electoral college - too many swing states are still in a dead heat to confidently predict a winner.

Advertisement

Likely congressional results are less mysterious. Republicans will almost certainly retain the House of Representatives. Although the Senate could shake out to a slight majority for either party, neither will get the 60 seats needed to overcome filibusters.

Whoever wins, half of American voters won’t be pleased with the results, and a minority party will retain power to block legislation. Mr. Market often greets such gridlock with something like open arms, but of late he has been stung by the result: policy paralysis. Rating agencies downgraded the country’s credit rating last year after legislators failed to reach an agreement on a debt deal.

With an economy-crushing splatter of tax hikes and spending cuts set to hit as 2013 begins, even the best case for Mr. Market isn’t particularly rosy. The Congressional Budget Office predicts a recession next year if nothing is done to avert this fiscal cliff. And even if Congress agrees on something in its lame-duck session, it would simply create another deadline to worry about.

Then there’s the really scary case. The vote could be so close that recounts are necessary and neither candidate concedes for weeks (and ultimately governs with a cloud over his legitimacy). That’s the worst kind of uncertainty for the markets. In 2000, the S&P500 fell 5 percent in the 36 days before Al Gore finally threw in the towel. And back then the climate wasn’t just less partisan, the government actually sported a fiscal surplus instead of a cliff.

So the winner is clear: Mr. Uncertainty. Poor Mr. Market is left wringing his hands.

Read more at Reuters Breakingviews.

TODAY IN SLATE

History

Slate Plus Early Read: The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.

Doublex

Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
Foreigners
Sept. 29 2014 10:00 PM “Everything Must Change in Italy” An interview with Italian Prime Minster Matteo Renzi.
  Business
Moneybox
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
  Life
Dear Prudence
Sept. 29 2014 3:10 PM The Lonely Teetotaler Prudie counsels a letter writer who doesn’t drink alcohol—and is constantly harassed by others for it.
  Double X
The XX Factor
Sept. 29 2014 1:52 PM Do Not Fear California’s New Affirmative Consent Law
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal, but … What readers said about the magazine’s bias and balance.
  Arts
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
  Technology
Future Tense
Sept. 29 2014 11:56 PM Innovation Starvation, the Next Generation Humankind has lots of great ideas for the future. We need people to carry them out.
  Health & Science
Bad Astronomy
Sept. 29 2014 12:01 PM This Is Your MOM’s Mars
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.