Stocks likely to recover no matter who's president

Stocks likely to recover no matter who's president
By MADLEN READ – 19 hours ago

NEW YORK (AP) — Wall Street prefers Republicans, McCain supporters argue. But stocks have done better under Democratic presidents, Obama supporters fire back.

When it comes to the stock market — especially this turbulent market — does it really matter who is elected president?

Yes and no. Politicians do influence the economy — and they'll play a big role in how the country emerges from this current crisis. But analysts say neither presidential candidate can be a cure for what's ailing Wall Street.

"The economy is a big, big machine, and the president is one government bureaucrat," said Ron Florance, Wells Fargo Private Bank Director of Asset Allocation.

Moreover, most analysts believe the battered stock market has nowhere to go but up next year, no matter who ends up in the White House — and history will probably give the victor credit even if he actually had little to do with the rally.

"The timing couldn't be better," Florance said.

Still, the stock market is just one part of the economy, and under either Barack Obama or John McCain, the United States needs to recover from a downturn whose severity has not yet been determined. And either candidate will face a budget deficit of around $500 billion when he's sworn into office — a shortfall expected to climb to $1 trillion next year.

Because of the deficit, the financial climate might end up affecting the new president's policies more than his policies will affect the financial climate.

"This whole financial crisis will largely serve as an agenda buster for at least the first year," said John Lynch, chief market analyst at Evergreen Investments.

That's not to say, of course, there aren't differences in the impact McCain or Obama would have on U.S. businesses, and in turn, their stocks. Robert Froehlich, an investment strategist at Deutsche Bank, said it's likely that under Obama, the alternative energy sector would do well, and possibly the paper and steel industries if he enforces trade treaties. And under McCain, Froehlich said, it's likely that big energy companies would do better because he does not support a windfall profits tax, and that financial companies could benefit because of his stance on dividend taxes, long-term capital gains taxes, and estate taxes.

"Don't expect the next president to say, 'I'm strapped with this economic crisis, I'm going to throw all my plans away,'" Froehlich said.

There are historical trends one can draw between presidents and how the stock market performs. The question is how seriously to take them.

The Dow Jones industrial average and the broader Standard & Poor's 500 index have posted larger returns during the terms of Democratic presidents. But this statistic doesn't prove that Democratic policies boost the stock market — the major indexes have also done better under a Republican Congress than a Democratic Congress.

Another pattern to take note of is the stock market's apparent four-year cycle, described by market historian Yale Hirsch in his Presidential Election Cycle Theory. The theory says the stock market does well in a presidential election year, badly in the year after the election and then improves until the next presidential election. This pattern has held up for most of the century, although it's being tested by the two terms of President George W. Bush.

However, the monetary policy of the Federal Reserve, rather than the influence of the president, can explain this pattern better, according to a 2007 study by CFA Institute Education managing director Robert Johnson, University of Wisconsin professor Scott Beyer and Northern Illinois University professor Gerald Jensen. Their study found that the Fed has tended to lower interest rates during the latter half of presidential terms — and lower interest rates encourage borrowing and spending.

At the end of the day, using the returns under previous presidents to predict the market's performance under another president gets to be like reading tea leaves. You'd probably do just as well basing your investments on next year's Super Bowl — Wall Street's infamous "Super Bowl Indicator" postulates that a victory by a team that was part of the original National Football League, before it merged with the American Football League in 1970, will result in better gains for the stock market. It's actually been right most of the time.

The lesson, of course, isn't to base investment choices on a football game. (Anyone who rushed to buy stocks after the New York Giants' win in 2008 probably got pretty burned). Rather, the point is that correlation isn't the same as causation.

And investors shouldn't get too caught up in the market's short-term reaction after the election results. The Dow surged, for example, after President Hoover was elected in 1928 — and the next year the it crashed, ushering in the Great Depression.

NOVEMBER 3, 2008 Lawyers Aim to Roll Back Curbs on Lawsuits
By NICK TIMIRAOSArticle
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Plaintiff and consumer groups, buoyed by prospects of a Democratic president and expanded Democratic majority in Congress, are preparing a big push for legislation that would roll back limitations on personal-injury and class-action lawsuits.

The plaintiffs bar's legislative wish-list includes limiting companies' use of federal regulations as a shield from litigation under state law, and laws to end mandatory arbitration in consumer contracts, opening potential new avenues for civil lawsuits.

The initiatives reflect a new aggressiveness by the plaintiffs' bar after years on the defensive.

The legal industry's fund raising for Democratic candidates and political action committees is on pace to exceed the $137 million raised in 2004, as pro-plaintiff groups see a rare political opportunity. "We've been back on our end of the field for too long," said Ed Mierzwinksi of U.S. PIRG, a consumer-advocacy group. "Now we do have a chance to throw deep."

Polls suggest Democrats could add to their 51-seat Senate majority in Tuesday's elections. If the party gains 60 seats or close to that number in the chamber and Democratic Sen. Barack Obama wins the White House, the Democrats could potentially block Republican filibusters and enact a sweeping agenda.

That has unnerved "tort-reform" advocates, who have sought limits on civil litigation.

"The impending election portends a perfect storm that will engulf business interests," said Lester Brickman, a law professor at the Benjamin N. Cardozo School of Law at Yeshiva University in New York. He warned of the "most significant enlargement of tort liability since the 1960s."

In the final presidential debate, Sen. Obama touted his independence from trial lawyers, citing his vote -- with 16 other Democrats -- to force more class-actions to be filed in federal courts, where juries have shown to be less sympathetic to plaintiffs.


Associated Press
Lester Brickman, law professor at Cardozo Law School
But pro-plaintiff groups see an ally in Sen. Obama, a former law professor, who has offered support for tighter consumer-safety regulations and co-sponsored a bill in August to roll back mandatory arbitration for military-service members and their employers. The bill remains in committee.

"There's a lot of hope because Obama ... should at least understand these issues and their importance in a way a lot of politicians don't," said David Arkush, director of Public Citizen's Congress Watch, a consumer-advocacy group.

Sen. John McCain, the Republican nominee, has been less supportive of tort reform than his party. He was one of four Senate Republicans to vote against a 1995 bill, later passed, that makes it more difficult for investors to bring securities-related lawsuits.

Legal issues have generally received scant attention during the campaign. "With all the other issues -- taxes, financial crises, the war -- this has been a B-minus issue," said Victor Schwartz, general counsel for the American Tort Reform Association. "But in terms of real money, this isn't B-minus."

President Bush often complained about excessive lawsuits choking the American economy, but many of his proposed changes -- limits on fees and big payouts -- were often stymied by trial lawyers.

The American Association for Justice, formerly the American Trial Lawyers Association, changed its name and revamped its approach under Jon Haber, a 55-year-old Democratic communications strategist hired as its chief executive in 2005. He hired political strategists, including senior Obama adviser David Axelrod, to create a "campaign-style political apparatus," said Democratic consultant Chris Lehane.

The centerpiece of the AAJ's agenda is its opposition to "pre-emption," or federal regulations that block product-safety lawsuits by consumers and states. The Supreme Court is set to hear a case challenging the pre-emption principle on Monday; Democrats have vowed to pass a law to redress the issue if the court sides with industry.

Plaintiffs groups have also been quietly building their case against the use of mandatory-arbitration clauses in consumer contracts. Over the past decade, credit cards, technology and telecom companies have increasingly required customers to waive rights to jury trials and class-action suits. Democrats have tried to eliminate the clauses in everything from nursing-home contracts to meatpacker-company agreements. "The trial lawyers used the last Congress to learn where the soft spots were," said Mr. Schwartz, the tort-reform advocate.

Law firms and lawyers gave $181 million to Democratic and Republican candidates in the current election cycle through Oct. 19, according to the Center for Responsible Politics, putting it on pace to surpass the $183 million donated in 2004 and up from $120 million in 2006. About 75% of all donations in the current cycle have gone to Democrats. The AAJ, the largest single contributor, has given $2.5 million to candidates, with about 95% going to Democrats.

Sen. Obama has raised $28 million from the industry, compared to Sen. McCain's $9 million.

Write to Nick Timiraos at nick.timiraos@wsj.com

Corrections & Amplifications: Jon Haber is the chief executive of the American Association for Justice. His first name was spelled incorrectly as John in the initial version of this article.
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