Ritholtz: Markets "Don't Give A Flying Fig" About Election Polls
As the 2012 Presidential election draws closer and closer, the usual rhetoric about one candidate being better than another for the stock market is, as always, a big issue in the press. But in a recent Washington Post column, Barry Ritholtz of FusionIQ and The Big Picture blog says it’s a lot of nonsense.
One commonly cited but off-base contention, according to Ritholtz: that the fact that a particular candidate is polling well is the reason that the market is rising or falling. “Let’s consider what is driving day-to-day stock prices: It’s not expectations about changing capital gains taxes or broad shifts in health-care spending — issues that arguably can be game-changers in elections,” Ritholtz says. “Rather, large hedge funds and high-frequency traders are the biggest participants short-term. The machine-driven mathematical traders have no interest in politics; their stock purchases are held for milliseconds, and their buying is driven by quantitative formulas that have nothing to do with any candidate. Hedge-fund managers certainly are not making bets dependent on the outcome of elections 10 months hence. They are more concerned with monthly, weekly and even daily performance. The technical factors driving what they do are far removed from whatever is happening on the campaign trail.”
Ritholtz also says presidents get more credit and blame than they deserve for the economy and market. “Consider how the markets did under George W. Bush, the most recent ‘pro-business president,'” he says, wryly adding. “Then imagine how markets probably reacted to the anti-business socialist from Kenya.” He notes that stocks fell nearly 40% in Bush’s tenure, while they’ve risen about 50% during Obama’s, despite perceptions about their market-friendliness.