Economic News & Analysis—August 28, 2012
Key election dates for investorsBy Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist
Every election seems to be the most important in history. I cannot recall in all my life or my readings of an election where the consensus view was, “Oh well; it doesn’t really matter.” Maybe in hindsight an election looks inconsequential, but the anticipation has always been that the impending election matters like none before it.
That’s not to denigrate the upcoming election. Not only is the next president to be decided, but one-third of the Senate and the entire House of Representatives is up for grabs. (See “An investor’s guide to the presidential election” for my analysis of the election outcomes for which investors need to prepare.) And every election is of importance to the trajectory of this great nation.
On this note, I have mapped out what I think are the important dates and events for investors and have outlined what I believe are the likely outcomes and implications for them.
Important dates for investors:
Republican National Convention: August 27–30Mitt Romney is all but certain to be the Republican candidate for president, with Paul Ryan (representative from Wisconsin) as his vice presidential pick. Romney’s selection of Paul Ryan as his vice presidential candidate highlights the major issue of the campaign: the federal budget. Because of the close balance between Democrats and Republicans in the Senate, the vice president could play an important role, considering he will cast the deciding vote on important issues.
Because of campaign finance laws, a lot of the money Mitt Romney has raised for the general election will become available after the convention. The primaries were costly and lengthy, which is one reason Mitt Romney has been relatively “quiet” in terms of advertising spending. That will dramatically change once he becomes the official candidate. To the extent that advertising will play a role in determining the outcome of the election, large advertising spending could lead to volatility in the polls, possibly leading to volatility in the markets.
Democratic National Convention: September 3–6President Obama is all but certain to accept the Democratic nomination, with Vice President Biden as his vice presidential candidate. President Obama has also raised a lot of money for the general campaign, so his advertising spending is likely to pick up after the convention. This will likely be the most expensive campaign in history in terms of advertising expenditures. Investors might not learn anything new from the advertising, but swing voters could be swayed one way or the other, depending on the voters’ perceptions of the candidates. If the advertising spending leads to a lot of back and forth in the polling numbers, that could induce volatility in the markets.
Presidential debates: October 3, 11, 16, 22The nominees for vice president will debate on October 11. The other debates are between the two presidential candidates. Each of these debates will cover a different general topic and will provide a platform for the candidates to outline their plans. Not only will the opinion polls after the debates be important to follow, but the content of the debates will also be important for a window into what an administration under either candidate could look like. As we all know, these are debates and not contractual obligations. As a result, the statements made are imperfect windows into the intentions of the candidates.
Election Day: November 6Markets will begin to handicap the winners of the various elections well before the actual election takes place. The movements of the market the day after will reflect adjustments to investors’ expectations of the new structure of government. The economy itself will not respond until the various rules and laws are actually passed and implemented. This difference between the speed of adjustment of the markets and the speed of adjustment of the economy highlights why investors who wait for the results of the election may feel a little “behind the ball,” as the market will likely move before the economy.
The market doesn’t always get things right, but it’s important to try to discern what result the market might be pricing into securities. If the market is right, then it will not move on the election results. This is why it is always good to have better expectations than the market.
Congress reconvenes: November 13If power shifts in either the Senate or the House of Representatives, then the next Congress will be considered a “lame-duck session.” Lame-duck sessions can be relatively uninteresting, with most controversial and outstanding issues bundled into bills that simply move the decisions into the next congressional session.
Lame-duck session or not, there are important issues that will likely spur Congress to act. The biggest issue is the “fiscal cliff,” which is the combination of scheduled tax increases and spending cuts to go into effect on January 1, 2013. If Congress is a lame-duck session, I expect current tax and spending policies to be extended to March 2013. That would push the debate well into the next session of Congress.
If it is not a lame-duck session, then the resolution of the fiscal cliff will likely depend on who wins the presidential election. If President Obama is re-elected, then the last few months of the year could look a lot like the end of 2010, with tax and spending compromises delayed until December 2012. If Mitt Romney is elected, then the extension of current policy will likely occur earlier, as we’d have a lame-duck president until the presidential inauguration.
The 112th Congress adjourns: Likely around ThanksgivingIf we have a lame-duck session, then Congress will probably adjourn as soon as possible. If it’s not a lame-duck session, then we could see work continue well into late December.
New Congress convenes: January 3, 2013A lot of administrative activities will take place, but little legislating will actually occur until the president’s term begins.
President’s term begins: January 20, 2013Although the president’s term begins on January 20, no budgetary action is likely to take place until the beginning of February, which is when the president is supposed to submit his budget to Congress. The budget the president submits may serve as the template for a new congressional committee to work from during February, as it works to submit a proposal for entitlement and tax reform in March.