This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

What Paul Ryan Means for Your Stock Portfolio

THIS WEEK: 10 Things To Know About Weekly Options, Thurs., August 16 at 6pm ET w/Russell Rhoads and Jill Malandrino. CLICK HERE FOR INVITE AND TO REGISTER.

The nomination of Paul Ryan to the 2012 Republican ticket is already one of the most polarizing electoral events since the selection of Sarah Palin in 2008. Whatever your politics, you might be wondering what significance, if any, this weekend's announcement has for your portfolio. Some pundits have wasted no time making predictions based on the Republican VP news.

For example, Brian Wesbury, chief economist for First Trust, an asset manager in Chicago, said on Sunday that "the bounce in the polls Romney gets from the VP pick should push the stock market higher this week." When I pushed back against this claim on Twitter, Wesbury doubled down: "Romney bounce in polls means higher likelihood of pro-growth policies [which] means higher equity prices."

Let's leave the substantive politics to the side. Whatever kinds of policies you favor, making successful predictions about short-term market movement based on the electoral news cycle is almost always impossible. In this case, there are fragile links all along the purported causal chain from the Ryan pick to the S&P 500 close on Friday. Here are a few.

- Romney has already indicated that he would not pursue Ryan's major reform proposals, so it isn't clear why a voter would evaluate the likely policies of a Romney administration differently now than she would have done last week.

- The political impact of the Ryan pick is unclear, but even if you think it improves Romney's chances, the rational net credence adjustment in subsequent long-term equity valuations should be tiny given the time-frame and general uncertainty involved; that adjustment is within the window of general market noise, not a cause for a major surge in stock prices.

- Also, there is no evidence that investors and traders in general will evaluate political events in a unified way. Many investors are said to be assigning equities a higher valuation based on expectations of more short-term quantitative easing, but that expectation is inconsistent with a high equity valuation based on the purportedly tight-money orientation of politicians like Ryan.

- Then there are all the generic, always-applicable arguments against making market predictions based on expectations about the economy. The economy is not the market: stock prices relate to economic conditions in different ways over time, and even if an economic policy makes a significant improvement in the real economy, stocks may or may not react in a predictable way to that change.

- Even if there was some causal connection between the political event and the market result, there is no way of confirming that connection ex-post. Markets move for countless reasons, and isolating one news item as a unique cause would be difficult even with the benefit of hindsight.
2012.PRES.ROMNEY 1W log change vs. SPX 1W log change (1W lag), 2011 - 2012
Source: Condor Options, CBOE, Intrade
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.02 -0.33%
FB $87.51 0.26%
GOOG $523.92 0.10%
TSLA $274.50 -2.00%
YHOO $38.61 -1.96%

Markets

DOW 17,683.58 -46.53 -0.26%
S&P 500 2,068.76 -8.02 -0.39%
NASDAQ 4,991.94 -17.2740 -0.34%

Free Reports