Don’t get all fired up over the 2016 Presidential election just yet. Photo by Joe Raedle/Getty Images News.
Editors’ Note: Our discussion of politics and elections is purely focused on potential market impact. Stocks favor neither party. Believing in the market/economic superiority of one group of politicians over another can invite bias—a source of significant investment errors.
Here are some recent top headlines:
Romney Leads Other Republican Contenders in New Poll
Obama Is Damaging Hillary’s Chances
Here’s the 2016 Republican Nominee
Democrats Need a Hillary Backup
Jeb Bush Stokes 2016 Buzz With South Carolina Trip
Why Elizabeth Warren Would Be a Very Dangerous Candidate in 2016
Poll: Rand Paul Shows Early Strength in New Hampshire
Liberal 2016 Poll: Elizabeth Warren Beating Clinton by Double Digits
Poll Reveals GOP Frontrunners in Potential 2016 Primary Faceoff
Biden His Time for 2016
Chris Christie Tied for Top Position in Presidential Battleground State of New Hampshire Poll
2016 Watch: Bernie Sanders Returns to Iowa Dec. 16
Here is what all of those headlines have in common: They don’t tell you who will win in 2016. Or who the nominees will be. Or even who the mainstream candidates will be. They are noise. They will not help you divine the election’s impact on stocks. It is far too premature to handicap anything about the race. The Presidential cycle is important for stocks, but whether certain headlines have you dancing in the streets or plotting your move to Canada, none tell you how political drivers will impact the market in 2016 or beyond.
For background and full disclosure: We don’t prefer any party over another, because markets don’t. The Internets, talk radio and cable TV are chock full of biased and opinionated talking heads claiming Party A is wonderful for economies and markets while Party B is horrible—and a seemingly equal amount claiming Party B is market and economic diamond-encrusted gold while Party A is radioactive kryptonite. Assumptions like those are deadly for investors. They keep you from seeing what stocks really care about, which is whether extreme legislation is more or less likely to pass in the foreseeable future. Both parties are capable of passing some stinkers, and both have done so. Sometimes they do it together while holding hands and being bipartisan, like they did with Sarbanes-Oxley in 2002.[i] Bias blinds. At this juncture, we’d merely point out that markets have a history of being positive in election years regardless of which party wins, while year one is more checkered, but none of that is a forecast. It’s too far in the future—sentiment and economic conditions then are unknowable today. As for politics, we have possibilities, but markets move on probabilities, and you can’t game reasonable 2016 electoral probabilities yet.
All that said, we get why the media is in speculative overdrive. This stuff gets eyeballs, and they are in the business of attracting eyeballs! Also, it gives those on the political beat something to do during the otherwise lame lame-duck session. It satisfies the post-midterm election-news withdrawal. And a lot of this stuff just makes entertaining theater. The will-they-won’t-they game has a certain kind of dinner party charm.[ii]
But none of it means anything at this point. Fun as it might be to speculate on the hidden meaning of current and former Senators’ and Governors’ travel schedules, all they tell you is where certain people will be on a certain day. Senator Elizabeth Warren’s (D-Mass) upcoming visit to Israel does not automatically mean she will be on the ballot in Iowa in 15 months. Nor does Jeb Bush’s appointment to deliver the University of South Carolina’s winter commencement address next month. Ditto for supposedly potential candidates’ adventures in Congress. Maybe certain Senators are trying to burnish their reputations for a run! Or maybe they’re just grandstanding, as politicians have since about always.
We aren’t skeptical about all of this merely for the sake of being ornery. History supports this in a big way, particularly on the Democratic side. Remember when Hillary Clinton was going to run away with 2008? When Howard Dean was supposed to be George W. Bush’s top challenger in 2004? Remember when Paul Tsongas was the 1992 shoo-in? Gary Hart in 1988? George Wallace in 1976? Heck, in 1972, George McGovern polled fifth when the campaign kicked off—everyone thought Edward Muskie would run the table. Occasionally the Democratic Party makes an exception for Vice Presidents like Al Gore, Walter Mondale and Hubert Humphrey, but more often than not, the big names and early front-runners fizzle, and a previously unmentioned newcomer seizes the nomination.
Republicans have more of a preference for nominating old war horses, but that doesn’t mean much this year, either. Romney fits the traditional mold of defeated candidates who come back for a second or third try, a la George H.W. Bush, Ronald Reagan and Richard Nixon, but Jeb Bush gets grandfathered into that category (literally[iii]) by virtue of his last name. Conversely, Rand Paul might seem too fresh-faced to get the nod, but so was Barry Goldwater in 1964.
Polls this early aren’t useful either—they likely don’t include the final field of candidates. Gallup’s poll on potential Democratic candidates in 2006 didn’t even include Barack Obama. The Republican poll skipped Fred Thompson, Ron Paul and a few others. Gallup’s 2010 poll on potential 2012 Republicans had Sarah Palin and Mike Huckabee taking second and third and included Haley Barbour and Tim Pawlenty. None ran. Michele Bachman and Rick Perry did, but they weren’t on the radar that early. Perhaps we are overly skeptical, but we would be shocked if the New Hampshire primary ballots closely resemble the Bloomberg/Saint Anselm polls of New Hampshire voters released Monday, which we recreated in Exhibit 1 for posterity’s sake.
Exhibit 1: Bloomberg/Saint Anselm New Hampshire Presidential Primary Polls[iv]
Source: Real Clear Politics, BusinessWeek, as of 11/24/2014.[v]
Maybe that is the dance card next-next February! But history and common sense strongly suggest some of those names will drop and others will take their place. We’ll leave the speculation over who to the folks who make a career out of guessing these things.
And speculation there will be. Lots of it. Along with strong opinions—love, hate, cheer, fear. It is and will all be noise. Most of it is just bias talking, which will pretty much always steer you wrong when analyzing political market drivers. We come as close as anyone working for an investment firm will ever come to promising something when we say we will provide plenty of specific Presidential election analysis as we get close to November 8, 2016. But for now, the best way for investors to think about US politics is to cheer the gridlock that accompanies a lame-duck President with an opposition Congress, and tune out the 2016 noise.[vi]
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[i] Ok so we don’t know about hand-holding, but the Senate passed the thing 99-1.
[ii] Or we guess so. We were always told one shouldn’t discuss these things at dinner or in polite settings.
[iii] Well, almost literally, since G.H.W. Bush is his pops. But saying “fathered” just sounded weird, and we really wanted to make this pun.
[iv] The actual poll included Romney and put his support at 30%, followed by Rand Paul with 11% and Chris Christie with 9%. The pollsters decided that was probably a bit speculative since Romney hasn’t really put himself out there, so they MacGyvered a new set of results from the would-be Romney voters’ second choices.
[v] “Someone Else” combines the responses for “Someone Else” and “None of the Above.” We assume the difference is a technical distinction that comes down to voters’ feelings. Like, the difference between “Oh, I was thinking of So-and-So, but s/he isn’t on your list” and “Oh geez please don’t let it be one of these clowns.” But that’s all just a guess.
[vi] Unless you are into that sort of thing for fun, in which case, have at it! Just don’t draw any market implications.