At long last, Americans go to the polls and decide who will be the Commander and Chief for the next four years. While there are other names listed on the ballot the two key contenders for President of the United States are the incumbent, Democratic Barack Obama, and the Republican challenger, Mitt Romney. Polls are calling it a very, very tight race and financial market participants are as eager as any for the election to be over as the uncertainty has cast a decided pall over the globe's economic outlook. What the future may hold for the various financial markets naturally depends on the election outcome.
Wall Street
If President Obama wins decisively, in the short term, i.e. immediately after the results are announced,U.S.equity markets are likely to follow the same path they did four years earlier; in a word – down. Historically, Wall Street returns have been higher after the first year under a Republican president, but looked at over the entire four years returns were higher under a Democrat. Be that as it may, Obama is not seen as a true friend of Wall Street, despite the several rallies that have occurred during his tenure. On the other hand, it should be noted that many of those rallies were as a result of the Federal Reserve's quantitative easing schemes, led by Chairman Ben Bernanke who should keep his job with an Obama win.
If Mitt Romney wins decisively, the stock market is likely to see a significant jump on Wednesday; when the last Republican president was elected (or re-elected in this particular case), Wall Street's major indices gained 3% in the first week alone, and were up more than 8% by the year's end. Romney is a friend of Wall Street, and speculators believe that with a Romney win onerous regulations (like those under Dodd-Frank) are likely to be rolled back, while possible tax code changes could benefit the wealthy. On the other hand, markets wonder what will happen to Ben Bernanke with a Romney win; Romney has said several times that he would fire the Fed Head. But the question is who would replace Bernanke, and would the Republicans find out too late about the devil you know"¦?
Commodities – Oil
Three issues will have to be considered by the next president; pipelines, regulation and production. If President Obama wins oil analysts expect still more delays in energy exploration on public lands, while the controversy of the Keystone Pipeline will continue to grow; regulation on future pipelines and oil refineries is likely to increase.
If Mitt Romney wins and he makes good on his promise to lift regulations, you can expect production growth on private and public land, while the Keystone Pipeline deal might be finalized at long last.
Given the economic principle of supply and demand, oil prices are likely to rise regardless of the outcome, but less so under a Republican president who would strive to increase production.
Commodities – Gold
A win by President Obama will likely result in a surge in gold prices as a result of a continuation of the current accommodative monetary policy by the Fed which has already significantly weakened the value of the U.S. Dollar and a likelihood of tax increases which will weigh on growth.
A win by Republic Mitt Romney would likely result in a stronger U.S. Dollar which would precipitate a decline in the price of gold. Commodities analysts believe that while gold prices might fall, other metals employed in industrial use including silver, copper, steel, iron ore, etc., are likely to get a solid boost from economic growth.
The Euro-Dollar
A win by President Obama suggests that the easy money days are likely to continue; easy money "?dollar" days, rather. The Fed has already promised ultra low interest rates for the next few years, and Ben Bernanke won't likely change from his dovish stance. The U.S. Dollar will continue to be soft against the majors, and only the fortunes or, more aptly, the "?misfortunes" of the Eurozone can change the equation in the most heavily traded currency pair.
Conversely, analysts believe that a win by Mitt Romney and a strong pro-growth agenda could mean the strengthening of the greenback over the long term. There is one hurdle to overcome for a Romney-led administration that could have unintended consequences for a stronger U.S. Dollar and that is Romney's position on China's currency. Romney has said that as president he would condemn China as a currency manipulator which could prompt a trade war between the world's two largest economies. Bearing in mind that China has immense holdings of U.S. Treasuries and U.S. Dollars, a sell-off of which could present a major threat to U.S.economic recovery.
Regardless of the outcome, what market players are most hopeful of at this point is a decisive winner and not a repeat of the 2004 presidential election when the world was left hanging for more than a month. Markets have experienced enough uncertainty and volatility ahead of this day, and investors are anxious to have some inkling of what is in store; a non-decision today would almost certainly have a broad negative impact on the world's financial markets.