TCS Daily

Investors Turn Thumbs Down to Kerry

By James K. Glassman - November 2, 2004 12:00 AM

If there were ever any doubt about the damage that a Kerry presidency would do to the economy, it disappeared this afternoon.

Almost immediately after the Drudge Report said that early exit polls were showing John Kerry doing well in battleground states, the stock market headed south.

As CBS Marketwatch put it:

"U.S. stocks staged a sharp reversal Tuesday, with blue chips sliding into negative territory and the Nasdaq paring gains amid reports that John Kerry is putting in a strong early showing at the polls.

"'The only thing I can see is that the Drudge Report shows the preliminary exit polls showing Kerry within striking distance,' said Jay Suskind, director of trading of Ryan, Beck & Co.

"Miller Tabak equity strategist Peter Boockvar said there was a 'sort of panic' as traders heard the news of Kerry's lead."

The truth is that, at this point, the exit polls are meaningless, with a small and skewed sample of voters being surveyed and a preponderance of women in the mix.

But the reaction of the market wasn't meaningless.

Investors were registering extreme uneasiness with the prospect of Kerry in the White House.

His economic program of protectionism, higher taxes and a nationalized health care system is frightening to the owners of America's businesses - that is, to the half of America's families who own stocks.

Since the race has been tight for many months, it has been difficult to draw a direct connection between Kerry's prospects and the market's performance.

In an article in the Wall Street Journal in August, however, my colleague Eric Engen, an economist at the American Enterprise Institute, examined the market's movement in periods when Kerry was rising and falling in the polls.

Engen wrote: "When Sen. Kerry's chances for election have risen in the short term has the stock market reacted positively as well? Unfortunately for the Democratic nominee, the answer is 'No.'"Engen's findings seem to have been confirmed by the sharp reversal this afternoon.

As for the exit polls. My advice: Cool it. At this point, no one has the slightest idea who is going to win this election.


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