A VICTORY for Republican candidate Mitt Romney in today’s US Presidential election could cause the Dow Jones to jump by a huge 500 points, it was suggested this morning.
Analysts and investors are expecting incumbent Democrat Barack Obama to retain the top seat in the White House, with such an outcome believed to be priced into markets.
A surprise Romney win could therefore cause a significant jolt.
“There would be an initial market bounce of perhaps 500 points on the Dow because a Romney victory is not priced in,” said Douglas McWilliams, chief executive of the Centre for Economics and Business Research (CEBR), today.
“A President Romney has promised a radical departure [from Obama’s fiscal policy], with bigger budget cuts and tax cuts. And he would be perceived as pro-business which might boost the financial markets,” McWilliams added.
Yet Romney may be more hostile to the Federal Reserve’s dovish chairman, Ben Bernanke, with the possibility of a Romney victory convincing Bernanke to quit before his term is due to end in January 2014.
A more hawkish Fed chief, less likely to pursue its ultra-loose monetary policy, could affect markets by leading to fewer asset purchase programmes, known as quantitative easing (QE).
“My guess is that Bernanke wishes to step down anyway and that the need for additional QE is diminishing unless the world economy takes another step downwards,” McWilliams said.
Despite its mammoth government debts, the US economy appears to be on a stronger road to recovery than other wealthy regions. McWilliams says this cannot be attributed to fiscal stimulus across the pond.
“The OECD shows that between 2009 and the estimated position for this year the US has cut its structural budget deficit by 2.3 per cent of GDP compared with 2.6 per cent for the UK,” McWilliams said.
“The difference is nowhere near enough to explain the difference between the rates of growth in the two economies.”