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Four Things Investors Should Know Before the Presidential Debates


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


3. The presidential debates will not affect the markets much.

With Wall Street already expecting an Obama victory and pricing in as such, the only way Wednesday's debate could be market-moving is if Romney does well and improves his chances of snatching victory.

"If the opinion on the results of the election changes because of the debate, it could be a market-moving event," Art Hogan of Lazard Capital Partners told CNBC. "If there's an upside surprise in Mitt Romney's performance here, and you see the spreads in the pivotal states tick up a bit, I think the market looks at that as a positive."

Otherwise, Hogan says that the debates will play a tiny role. "I just think at this particular time, we have earnings right around the corner, and with the situations with Greece and Spain, there's just so many macro issues to deal with. The election is one, not first and foremost," he said.

Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire, agreed, telling Business Recorder that "an ECB- or Spain-related headline out of Europe on Thursday could overcome almost anything that would happen Wednesday night during the debate."

4. The debates will likely not matter in deciding the president, but the performance of the markets will.

While presidential elections generally score blockbuster ratings for TV networks, they rarely affect the outcome of presidential elections. A Gallup report found that only two debates between 1960 and 2004 -- one between Kennedy and Nixon in 1960 and one between Gore and Bush in 2000 -- had any significant influence, reported ABC News.

What might be a better prognosticator of election outcomes is the performance of the stock market. In a note, Sam Stovall, Chief Equity Strategist at Standard & Poor's Capital IQ, and chairman of S&P's investment policy committee, said that since 1948, the S&P 500 (INDEXSP:.INX) has enjoyed an 88% success rate in determining whether or not the incumbent retains his seat, noted Forbes.

If the S&P 500 registers a gain between July 31 and October 31, then the incumbent will win reelection, Stovall said. If the index suffers a loss in that period, then the challenger prevails.

Specifically, when the S&P 500 stock index rises from July 31 through October. 31, the incumbent president will get reelected. But when the S&P posts a loss during that three-month period, the incumbent will get booted out of the White House.

On July 31, the S&P 500 closed at 1,379.32. The index closed at 1,445.75 on October 2. Obama will have his fingers crossed that nothing disastrous happens to the economy, to Europe, or to China, in the next 29 days.

Twitter: @sterlingwong
No positions in stocks mentioned.
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