by Daniel Putnam | January 26, 2012 9:39 am
It’s never too early to start thinking ahead to the potential impact an election can have on the markets, and a look at some important numbers shows that investors may want to consider what impact President Barack Obama’s re-election will have on stock prices. Here’s why: GOP candidate Mitt Romney is generally seen as the only candidate capable of beating Obama in the fall, yet several factors are weighing against him even if he fends off Newt Gingrich’s latest surge.
Although conventional wisdom says that a moderate Republican is more likely to win a general election than a conservative, recent history has shown that GOP candidates can’t win without enthusiastic conservative support. Ronald Reagan won as a conservative candidate twice, and so did George W. Bush — although it’s a matter of debate how much Bush actually followed conservative principals once he was in office. On the other hand, Republicans who ran as moderates — George H.W. Bush (1992) and John McCain (2008) — were both soundly beaten.
Today, we see moderate Republican Mitt Romney running into similar problems as his predecessors. This is evident not just in polls, but also in Rick Santorum’s Iowa victory, the steady improvement in Ron Paul’s polling numbers, and the exit polling data from South Carolina showing conservatives flocking to Gingrich.
Why is this important? Consider the lesson of history: in 1992, Pat Buchanan launched a primary challenge against George H.W. Bush, who at the time was the sitting President, and he managed to garner 23% of the vote. This was the early tell that Bush, who had alienated conservatives from backing off of his no-new taxes pledge, was in for trouble in the general election later that year.
In 1996, the presumed front-runner, Bob Dole, also ran into early difficulties, with Pat Buchanan winning three states and Steve Forbes taking two before Dole finally moved out in front for good. Again, these early primary difficulties — which indicated a search for an alternative similar to what we’re seeing right now — proved to be an ominous sign of what was in store for Dole in the autumn.
Today, of course, Romney finds himself in the same predicament as Bush and Dole before him. Unless he finds a way to generate enthusiasm among conservatives, beating Obama will be a tough order based on what has transpired in the past.
Barack Obama faces numerous challenges as a candidate, but a candidate who opposes him needs to make voters comfortable with the “devil they don’t know” in order to unseat the incumbent. So far, Mitt Romney is missing the mark on this front: his unfavorable rating has spiked to 49% among all voters, versus 31% favorable. This is a volatile measure to be sure, but a 49-31 unfavorable rating is territory that can only be described as “unelectable.”
Romney’s polling data has been weak throughout the South, and Saturday’s primary results serve as a confirmation of this trend. Just as it is a tremendous challenge for a Republican to win without conservative enthusiasm, it is also difficult to win without running the table in the South. Obama turned North Carolina (15 electoral votes in 2012), Virginia (13), and Florida (29) from red to blue in 2008 versus 2004, and a Republican candidate will need to flip these 57 electoral votes back to the GOP column to have a legitimate shot.
Along the same line, consider the national reception afforded to the last two Massachusetts candidates to run for President: Michael Dukakis and John Kerry. Both were Democrats, of course, but Romney is in danger of being painted with the same “Northeastern elite” label that haunted Kerry eight years ago — a major problem when it comes to garnering the level of support he will need from the South.
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.
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:
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.
Want to share your own views on money, politics and the 2012 elections? Drop us a line at email@example.com and we might reprint your views in our InvestorPolitics blog! Please include your name, city and state of residence. All letters submitted to this address will be considered for publication.
Source URL: http://investorplace.com/investorpolitics/4-reasons-romney-wont-beat-obama-and-what-it-means-for-the-markets/
Short URL: http://investorplace.com/?p=124923