As for effects on the markets, the double intervention in oil and the Euro, along with attempts to re-assure analysts about tech earnings, may have helped firm up equity markets on Friday, but, if you look at price action in the Nasdaq, the post-Labor Day downtrend remains fully intact. It could bounce a little more, and still be trending down. Without additional news (though, of course, that never happens), we might hope to trade sideways for a while within the area described by Friday's price action and the June 2 gap.
The role of the election should also be considered. If the market crashes instead of rallying into the election that might normally help the challenger, except that Bush has based so much of his program on economic optimism. His tax program presumes a massive surplus--it's like selling puts on the American economy at a point when it's at historic highs. His Social Security program is likewise tied to optimism about the stock market. And the public still looks to Democrats for protection when the economy stumbles. So it appears the Republicans can't win for losing: Resumption of the upswing seems to favor the party in power. A downturn and uncertainty would seem to favor the populist/government activist.
As for the effect in the opposite direction, it's generally presumed, I think correctly, that the market favors split government, but with a Republican bias. If the Democrats maintain their momentum, snuffing out Bush-Cheney and endangering the Republican majorities in Congress, that can't be a positive for Bulls, at least in the short-term. Some of the negative backdrop for the market at present has got to be re-adjustment of political expectations, as well as the recognition that, even if Bush somehow pulls this one out, he may not have the makings of a competent chief executive. Would you invest in a company run by that man? |
