A Deadlocked Election Should Scare Investors

A hung election could spur a Wall Street drop.

Romney and Obama battle during the presidential debate at Lynn University.
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"The candidates have had an unusually long time to take their shots at each other because the nominations were decided early," says Edwards. "And that really has had the effect undermining the perceptions that either can manage the economy." 

The prevailing view is that voters who remain undecided are politically less-sophisticated, and political strategists are turning to negative campaigning to win their "more emotions-based" support, Edwards says. 

Such fear-mongering adds a Stephen King-like suspense element to the election drama, a storyline that could become even more of a horror for the markets if the election is inconclusive, Edwards says.

Hanging chads, market doubts. The market fell by 5 percent in the six weeks following the November 2000 election when the country's future direction hung from a few chads in Florida. But those were gentler, kinder times. George W. Bush ran for his first term as a somewhat more moderate politician than the President Bush who left office eight years later. His adversary, Al Gore, was a Clintonian southern Democrat who served as vice president in years during which the economy and markets rose steadily and budget deficits were eliminated. Neither inspired much market fear.

Also different this time: The eventual winner of this election faces a divided Congress that must deal with a "fiscal cliff" as tax cuts expire and across-the-board spending cuts begin, and the debt ceiling again needs to be raised. Fidelity Investments research figures that GDP could be trimmed as much as 4 to 5 percent if such issues are not resolved.

[In Pictures: The S&P's 10 Worst Trading Days.] 

Scary indeed. Investors might get a small shiver when those mini-Mitts and baby-Baracks come trick-or-treating. The biggest fear is not that one candidate or the other wins, but that both stay on in our living rooms in the form of news reports of an undecided election and a divided leadership. The procedural steps would take at least a month, and perhaps longer. And since the House decides the president and the Senate decides the vice president, there could be a divided White House as well.

One of the mass producers of masks, Spirit Halloween, reported that the best-selling Halloween candidate mask has a solid record at predicting winners. If it does, Barack Obama could be headed to a second-term landslide, since his image outsells Romney 63 percent to 37 percent.

But if both candidates fall short, there will be no masking over the leadership void facing the country ahead of the election of 2012.

Election week starts with Hurricane Sandy slamming the most populated region of the country, hitting red, blue, and purple states and disrupting early voting in some. The Frankenstorm could haunt the region for days.

Are you scared yet?