Obama or McCain: Stocks May Not Care Who Wins

Election Day is turning out to be a good one for stocks, but the postelection direction for shares will most likely be less about who wins and more about continued improvement in the market's weak spots.

The FT quotes Deutsche Bank's Jim Reid:

We are not sure if an election result has ever mattered so little to the markets. Whoever gets elected will have to deal with things larger than normal party politics so it's no surprise to us that there hasn't been the usual research dedicated to what will happen to the market under either the next Republican or Democratic administration.

Even "partisan" sectors like pharmaceuticals or biotech could be immune from postelection selling in the event of an Obama win, according to Reuters's Toni Clarke:

Major decisions on how to cope with the credit crisis are likely to dominate U.S. government thinking in the new year, bumping down healthcare reform on the priority list for the new president and members of Congress.

That spells relative stability for drug stocks, which is attractive to investors seeking safety after a terrible October for the stock market—one of the worst months on record.

"I think most investors feel the healthcare plans of both candidates are on the back burner until the financial crisis can be solved," said Damien Conover, an analyst at Morningstar.

What really matters is a calmer trading environment and sustained improvement in credit markets as both candidates head toward a tough slog through a period of very weak economic growth. Credit is improving as one-month Libor rates hit a four-year low. Plus, it appears stocks may be regrouping after an absolutely awful October. From Investor's Intelligence:

A powerful week sets records and signals new upside potential

The S&P 500 had its best weekly percentage gain since 1974 while other indexes had either their best gains ever or since the early 1930's. October was still one of the worst months on record.... Last week didn't mean the bear market was over but there was significant progress in distributing shares in preparation of the next upmove. Further evidence came from our selling climax data which reached its highest reading ever. Over 1,400 stocks fell to new 52-weeks lows but then closed higher for the week. That signals new buyer interest that was strong enough to turn the trading around and the record reading says a bottom has been achieved.