4 Reasons Romney Won’t Beat Obama — and What It Means for the Markets

Likeability, electoral map will make it difficult for Romney to win

     

4. The Electoral Map

A look at the electoral vote breakdown by state from the 2008 election, and matching it up with the current state-by-state polling results, shows a significant problem for Romney. Keeping in mind that there are 538 electoral votes and 270 are needed to win, Obama starts with 203 secure electoral votes, and Romney with 142, assuming all the “secure” states from 2008 vote the same way in 2012. Of the 193 remaining, Romney would need to win 128, or two-thirds, to reach 270. Obama, in contrast, only needs 67. Based on current polling, however, Obama would be on track to win 156 electoral votes from these swing states, and Romney 37. This puts Romney in a tough spot, since he would have to win all three of the largest swing states — Florida (29), Pennsylvania (20), and Ohio (18) — and still pick up an additional 34 electoral votes from other states.

This is especially problematic for Romney, besides the obvious numerical disadvantage. Both consumer confidence and unemployment have positive correlations with presidential approval ratings, and both are now moving in a positive direction. If these favorable trends continue, the GOP gradually loses one of its most important talking points against Obama — making this uphill climb all the more challenging.

Does Party Control Matter?

Wells Fargo conducted research in 2010 to determine the impact of party control on stock market in the prior 70 years. While it’s impossible to discern cause and effect, their findings are as follows:

Stock Market Return Based On Control of President/House/Senate
Democrat/Republican/Republican RRD RDD DDD RRR
15.3% 10.5% 6.6% 5% 3.3%

Market Impact

The question, of course, is whether investors will be able to use any of these facts to their advantage during 2012. The answer is most likely “no,” since the market absorbs the election results gradually through the polls. However, a potential surprise may exist in the form of the negative coattail effect that would occur if Gingrich manages to upset Romney. This scenario would not only be likely to result in a large Obama victory, but also a weaker Republican performance in the House and Senate races than the current consensus would suggest.

As a result, it’s time to start thinking about how a potential Obama victory will impact your performance if you’re making any investment that you plan to hold for a year or more. And, if Gingrich emerges as the nominee, it will be time to consider the effect of public policy being more heavily influenced by the Democrats’ initiatives in 2013 and 2014 than has been the case during the past year.

The opinions contained in this column are solely those of the writer.

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