photo by Seansie
Written by Dave Young, President of Paragon
How will the presidential election effect you?
2008 has been a rough year for investors.
Whether you have been invested in real estate or the stock market, both have gone down more than up. The credit crisis and high energy prices have been blamed for most of the damage.
Talking to investors, I get the sense that many are worried about the election.
The data that we track from Intrade, a futures based election trading system, show Obama with a clear 64% to 37% lead over McCain. Unless Obama makes some unbelievably bad mistakes over the next couple of months it is likely he will be our next president. Historically, this tracking service has been much more accurate than traditional polling.
Investors are justifiably concerned because many of Obama’s policies are potentially damaging to our economy.
Under the premise that the government knows how to better spend your money than you do, Obama wants to raise taxes significantly. And any economist will tell you that raising taxes is not the way to help a weak economy.
Obama’s platform proposes major tax increases.
He is focused on raising more taxes from those taxpayers who already pay 90% of the U.S. tax bill. The bottom line with his program is that if you already pay a lot of taxes then you will pay significantly more. If you don’t pay very much in taxes then you shouldn’t see much change, you may even pay less. According to a recent Wall Street Journal editorial, Obama would raise the top tax rates from their current 40% to over 60%, including the state and federal taxes.
This is a calculated political bet that there is a majority of Americans that want the more affluent minority to pay all of America’s bills. Throw in some anti war rhetoric and a promise of undefined “change” and you have a recipe for a successful presidential campaign.
There is really no benefit to arguing the merits of Obama’s platform. We can’t control the outcome of the election. But we can control the investment strategies we follow in these uncertain times.
Historically, when democrats take the white house, the market usually does better than under republicans. That was no typo. It’s a little confusing though.
Usually going into an election, if a democrat is winning, Wall Street expects the worst, and the market sells off in advance. After the democrat gets in office, then Wall Street realizes they aren’t going to do what they promised, breathes a sigh of relief and then the market rallies.
On the other hand, if a republican is winning, the market has positive expectations and rallies in anticipation. But then after the republican gets in, and doesn’t keep their promises, then the market sells off in disappointment.
So far this year the market has followed a pattern similar to previous election years when the incumbent party has lost.
If McCain is able to miraculously turn things around then we will likely see a significant rally into the end of the year. If Obama keeps his lead then the market will likely be flat to only slightly up between now and the end of the year, but then next year the market should perform better.
While market forecasts make interesting conversation, I don’t put a lot of stock in them, including my own. At Paragon Wealth Management, our investment decisions are all based on quantitative models. We process market data on a daily basis and make our decisions accordingly. Human emotion is removed from the decision process.
Paragon’s investment models measure what is actually happening in the market, day by day.
They are designed to react to what the markets are actually doing rather than what we think will happen in the future. For example, whether a democrat or republican wins will affect how health care stocks, energy stocks, tech stocks, financial stocks, defense stocks, etc. all react.
The bottom line is that this election WILL affect the market.
Certain markets and sectors will perform much better than others, depending on the election outcome. It is important to have an investment strategy in place that will adapt to whatever changes take place. In the stock market, change is the only constant that you can plan on.
Visit our website for more information at www.paragonwealth.com.