Tuesday, July 31, 2012

Wall Street Already Betting On Who Wins in November

With just 100 days left until the U.S. presidential election, investors are beginning to make bigger bets on which candidate will carry the day. 
One analysis concludes that last week's sharp three-day market surge can only mean that Wall Street is banking on a victory from Republican Mitt Romney.
That's the logical interpretation one can draw from a rally amid conditions that otherwise would demand a selloff, Morgan Stanley chief U.S. equity strategist Adam S. Parker said in an analysis that asserts there is no other reason now to like stocks than a Romney win. 
"The problem is that it’s impossible to be bullish and right for the right reasons," Parker said in a note to clients in which he reiterated his 2012 price target for the Standard & Poor's 500 [.SPX  1385.30    -0.67  (-0.05%)   ] at 1,214, which would mark a 12 percent drop from the current level.
"Nearly every day someone expresses surprise that our base case is for the equity market to be down by 10-15 percent. Why is this so hard to believe? The market has had eight 10 percent down moves in the last 12 years," Parker said. "We think a better question is why more people don’t forecast that the next 10-15 percent move is down than up?"
Parker cites weak earnings and the likelihood that central bankers won't be able to continue to save the day as bolstering the case against equities. The near-zero interest rate policies from the Federal Reserve and now theEuropean Central Bank, in fact, are weakening the outlook for stock multiples, he said.
The conclusion Parker draws is that investors are betting that Romney will unseatPresident Obama and bring a more business-friendly environment to the White House.

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