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Four Things Investors Should Know Before the Presidential Debates

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Can the debates move the markets and change the election, or is it the other way around?

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MINYANVILLE ORIGINAL Tonight, President Obama and Mitt Romney go head to head in the first of a series of three debates before voters head to the polls in November.

Both candidates have taken time off the campaign trail to practice intensively for the event, with Obama setting up camp in Nevada and sparring against Democratic Massachusetts Senator John Kerry, who plays Romney in their mock debates. The former Massachusetts governor, meanwhile, has held practice sessions with his own sparring partner, Ohio Republican Senator Rob Portman, in Vermont, Los Angeles, and Boston.

With anticipation building for the event, here are four things you need to know in order to prepare for viewing this Rocky Balboa-Apollo Creed redux.

1. Wall Street is already preparing for an Obama victory.

With a slew of national polls taken in recent weeks suggesting that President Obama has widened his lead over Mitt Romney, Wall Street, though not the biggest Obama supporter this time around, is bracing itself for Obama to win the election. Traders at hedge funds and investment firms have started emailing their clients telling them to prepare for an Obama victory.

So what does an Obama victory mean for the Street? Presuming the Republicans hold on to the House, it could mean another ugly budget battle between the two parties over the looming fiscal cliff, much like the tough debt ceiling negotiations we witnessed in 2011.

Reported the Huffington Post:

The widespread belief on Wall Street is that Congress and Obama will start negotiations over raising the debt limit and pushing back the fiscal cliff when they return in late November – the so-called lame-duck session, because newly elected members of Congress will not have taken their seats.

Twists in the talks will likely rattle markets as the new year approaches. But if stocks do fall sharply, investors expect that would push Republicans and Democrats to reach a deal.

"Ugly negotiations in the lame-duck session could really throw the market for a loop," says [Jeff Kleintop, chief market strategist at LPL Financial]. "It could be a painful process for investors."

2. Expect Obama to stay conservative while Romney goes on the offensive.

With his lead in the polls, Obama does not need a flashy performance at Wednesday's debate to win votes. He just needs to avoid making a massive gaffe, like when Gerald Ford asserted in 1976 that Poland and the rest of Eastern Europe were free from the yolk of the Soviet Union. His task, as the AP wrote, is simply: "Don't screw things up."

Romney, on the other hand, will need to aggressively attack Obama's economic policies in hopes of producing a game-changing moment that could alter the course of the elections. (Perhaps he could channel Ronald Reagan in once again asking if Americans are better off today than they were four years ago.) But this strategy has its perils, as noted by the Wall Street Journal.

"[T]he difficulty Mr. Romney faces is that the kinds of attacks most likely to change the dynamic of the race or produce a memorable moment also happen to undermine a parallel Romney need, which is to make more voters warm up to him. Even candidates who successfully attack in a debate often make themselves less likable in the process. And Mr. Romney doesn't have much likability to spare. On the other hand, he has less to lose at this point, which can be a liberating condition," wrote Gerald Seib of the Journal.
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No positions in stocks mentioned.
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