Do the US Elections Matter for Investors?

October 26, 2012

To answer this question, we looked at the empirical relationships between the party in the White House and the stock market, as well as the economy, over decades. We also examined tax rates and the stock market. While pundits can always find anecdotal episodes to support either side of the aisle, our research delivered an answer thatís completely nonpartisan.
-Frank Caruso, team leader of US growth equities, AllianceBernstein

Pundits across the political spectrum say the health of the US economy and stock market hangs in the balance of this yearís presidential election. We found that when it comes to driving the stock market, politics actually takes a back seat.

At one extreme, investors on the right assert that four more years of the current administration will lead to a double-dip recession and a stock market crash. Investors on the left warn that proposals from the right are a rehash of the policies that led to the worst recession since the Great Depression.

But when you push aside the rhetoric, what are the actual facts?

It is certainly true that specific legislation matters for investors, especially for bottom-up portfolio managers. For example, the US ethanol policy, and the related 50 million acres of corn planted each year, could mean that a reduction in subsidies would meaningfully lower grain prices, potentially affecting agricultural companies. More directly, defense appropriations impact aircraft manufacturers.

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