It’s hard to remember the last time Wall Street was as repelled by a presidential candidate asitisby John Kerry. Many stock analysts are convinced that the mere threat of a Kerry presidency has caused equity values to slump in the past two months. “No one wants to make major investments in the wake of a presidential candidate whose economic agenda would substantially raise taxes on investment and thus substantially raise the cost of capital in America,” says investment specialist Robert Grusky of New Mountain Capital.
What Grusky is referring to here is the Kerry-Edwards risk factor. Efficient markets trade ahead of anticipated policy developments. A new analysis by Eric Engen, an economist at the American Enterprise Institute, finds that over the past several months there has been an inverse relationship between Kerry’s poll numbers and the direction of the S&P 500: “The evidence suggests that when Sen. Kerry’s political fortunes rise, the stock market tanks.”
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