Doug Kass, managing partner of Seabreeze Partners, predicted a Democratic sweep on CNBC's Kudlow and Company program Monday afternoon. The result, he thought, would be a severe sell-off in the market. Much like Kass's calls for doom and gloom on Wall Street have been wrong in recent months, they were wrong this time as well. Now you can say that the Rumsfeld resignation helped boost stocks, which I cannot dispute, but the Dow was only down 25 points or so before that news hit the wires.
So why the positive reaction on Wall Street? There are weak spots. Healthcare stocks are down. Pfizer (NYSE:PFE) down 2 percent is attractive. Sallie Mae (NASDAQ:SLM) got hit too, as the Dems want more affordable college loans. But other areas, such as oil, are actually up and in some cases up strongly. Fears of a windfall profits tax are overblown. The idea is silly in a market-based economy. I'm glad that the Dems really aren't pushing hard for it. As much as I don't like the fact that big oil is getting tax breaks (I think that is one place the Dems can try and raise taxes and not take heat for it), passing on some of their profits to the government during good times is not a viable idea.
Anything truly outlandish would likely get vetoed by President Bush. The Dems will want to get things done, and if Bush shows any willingness to compromise on anything, we might get a handful of things done in Congress over the next two years. That is more than we can say about recent memory, so that is a positive development for the American people, and the stock market.
Regardless of what the Republicans say, Democrats are not bad for the economy and stocks. The numbers simply don't support that view, in fact, they show the opposite. My very first post on this blog two years ago looked at the market and the economy under Democratic and Republican administrations. Economic growth, employment, fiscal responsibility, inflation, and stock market returns are all better under Dems. Now I know that Bush is still President, but the point is made merely to refute the idea that Dems having more power with respect to policy means lower stock prices. It's simply untrue.