Love Or Hate - Wall Street Will Hate A Republican Win

By Will Ashworth | November 05, 2012 AAA
Question: Would Wall Street love or hate a republican president?

Hate Side
Mitt Romney and Barack Obama are neck and neck in the polls with a day to go until the November 6 presidential election. One area where Obama appears to have a clear advantage is with early voters who favor the president almost two to one. That's great news for Wall Street. An Obama victory should produce additional gains for stocks whereas a republican win would lead to losses. I'll explain why.

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Be Careful What You Wish for
Wall Street's love affair with Obama in 2008 has all but disappeared. Four years ago, it gave $15.8 million to Obama's campaign. In this year's campaign, the amount has dropped to $4 million, compared to $16 million for Romney. Case in point, Goldman Sachs (NYSE:GS) employees chipped in a little more than $1 million to Obama's 2008 campaign. This year, that's declined to $136,000, while Romney's campaign has received$900,000.

Investment bankers are unhappy with Obama, despite the fact that he saved their bacon four years ago. You would think Wall Street would be ecstatic that the S&P 500 has gained 68% since Barack Obama took office on Jan. 20, 2009, but that's not the case. The reasons for its displeasure are two-fold - bonuses have declined for the second straight year and increased regulation, including the implementation of the Volker Rule, is making it more difficult for the banks to generate profits.

Since the Dodd-Frank legislation was passed in 2010, Wall Street has spent $330 million lobbying Washington. It seems that Jamie Dimon and company are more concerned about their personal fiefdoms disappearing than investors making money.

SEE: Who Does Wall Street Want For President?

Historical Performance
While republicans talk the language of free enterprise, the democrats historically deliver the goods when it comes to creating jobs and helping stock prices to rise. According to Bloomberg, democratic presidents have created 150,000 new private-sector jobs on a monthly basis since 1961, compared to 71,000 for the republicans. Those stats were so compelling that Bill Clinton used them in his speech at this year's democratic convention.

Rick Newman of U.S. News & World Report found that if you include public sector jobs in the calculation, the democrats since 1961 have created 48 million new jobs, compared to 31 million for the republicans. Furthermore, extrapolating these figures with those of Bloomberg, republicans and democrats created an equal number of government jobs over the last 51 years. While it's not always easy determining whose policies are responsible for what, it's clear that democrats do more than tax and spend.

In terms of the economy, the GDP has grown 4.2% annually under the democrats since 1949, compared to 2.6% for the republicans; corporate profits under the democrats fare better, with profits growing 10.5% versus 8.9% for the GOP. All of this leads to democrat presidents delivering better returns for the S&P 500. Since 1900, according to S&P Capital IQ, the index has averaged 12.1% annually under democrat presidents versus 5.1% for republican presidents. Under Obama, GDP has grown 1% per year, corporate profits by 52% and the S&P 500 by 12.3% annually. Pulling all three stats together, it's obvious that a greater percentage of Americans benefit under democrat presidents than under republican ones.

SEE: GOP Vs. democrats: Who's Best For America's Economy?

Stocks to Benefit
Corporate profits and economic growth generally are the two leading factors in rising stock prices. While Wall Street views Mitt Romney's talk of repealing parts of the Dodd-Frank financial reform as beneficial, when all is said and done, Americans of every stripe benefit the most when jobs are created, GDP grows and corporations generate profits. Dodd-Frank does little to impede any of that. For this reason, Wall Street should put aside its self-interest and instead focus on the big picture.

You might think Mitt Romney's your friend, but he's not. Jamie Dimon, CEO of JPMorgan Chase (NYSE:JPM), has the audacity to complain about mortgage underwriting being too tight, yet his bank just delivered record third quarter profits of $5.7 billion. Obama's administration has made it tougher for people to get mortgages and that's how it should be. Yet Dimon whines about it.

President Obama has made banks stronger by restricting what they can and cannot do. The country is better off as a result. The truth is: Banks aren't being prevented from lending, it's just that they don't make much money doing so in this low-interest environment. Wall Street will hate the election of Romney because it will ultimately result in higher bank failures due to relaxed regulations. It didn't go too well the first time.

SEE: Dodd-Frank's Consequences

The Bottom Line
Although Wall Street has changed its tune when it comes to campaign contributions, ultimately it will be better off with an Obama administration in the White House because history has shown that Wall Street does best with democrats in power, especially incumbents.

Bank of America (NYSE:BAC) analysts suggest in their Election 2012 report that companies to benefit from an Obama win include hospital operators such as HCA Holdings (NYSE:HCA), pharmaceutical distributors like Amerisource (NYSE:ABC) and alternative energy businesses such as NextEra Energy (NYSE:NEE).

Whichever candidate wins the presidency, it's important to keep in mind that the markets are unpredictable at the best of times. Wall Street thinks the republicans are a better choice, but the bailout is evidence to the contrary. Be careful what you wish for America; you just might get it.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

Don't forget to read the other side of this debate and weigh in with your opinion below.

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