Financial News

Who do investors want to win the US election?

America elects a new president in just six weeks, so here’s a look at whether voting a second term for Obama or backing Romney makes any difference to the stock markets.

The evidence is surprising, because traditionally, investors believe Republicans are pro-business and more likely to limit government involvement in the markets and promote lower taxes.

Democrats, like Obama, are viewed as seen as more willing to raise taxes and regulate markets.

The inference is Republicans are better for investors, but analysis of the markets after the past 12 US elections by Fidelity Worldwide Investment simply does not bear this out.

Over the past 48 years, the figures show the Standard & Poor’s 500 has delivered nearly a 12% return under the Democrats, and a measly 4% return under the Republicans.

Obama leads by 14 points

The good news for investors is bookmakers and spread betting markets are favouring re-election for Obama, who has a 14-point spread advantage on Mitt Romney, leading the field by 57% to 43%.

The big question is what will happen to the market if Obama does win?

History, according to Fidelity, says that the market will rally if the incumbent president wins a second term.

Tom Stevenson, Investment Director at Fidelity Worldwide Investment, said: “Other evidence suggests that the US stock market has historically delivered the strongest returns in the third year of an election term.

“This effect might be tied to the incidence of government spending within the presidential cycle where most government expenditure occurs during the first and second years of an election term.

Fiscal cliff

“Looking at stock market performance following the last 12 elections suggests that investors should, in the short term at least, be rooting for an Obama victory. History shows that markets tend to rally after a win for the incumbent party by more than 10% on average, but fall modestly if the challenger is successful.

“With America teetering on the brink of the so-called ‘fiscal cliff’ the outcome of the US election is likely to be significant for markets and investors.”

The polls are backing Obama to win the election on November 6.

One of the latest, by news agency Associated Press, echoes the spread betting markets by giving Obama a 52% to 37% lead over Romney.

AP’s approval is the first time Obama has climbed above the 50% barrier since May.

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