2:15 pm ET: Apparently traders found something to cheer about in Ben Bernanke's testimony before Congress. Perhaps it was the acknowledgement by the Fed chief that he might take more steps should the economy worsen that reversed the downward trend in the major averages. Whatever the reason, it sure worked because the S&P, Dow Industrials, and the Nasdaq have managed to not only erase their early morning losses but are now trading in the green.
That's not to say the bears have left the picnic. In the past several months there's been a major struggle playing out between buyers and sellers--one day the bulls are victorious, the next day the bears move in swatting down previous gains. I've been ruminating on why this might be so and have come up with an idea: Could the upcoming presidential election have anything to do with this market's bipolar nature?
Think about it. An Obama victory would certainly trigger a sell-off in stocks and likely send the country into a recession (or even a depression as some propose); a Romney win would temper the concerns of Wall Street as the so-called "fiscal cliff" might be avoided. It's not the focus of this post to debate the merits of either potential administration--my intention is to build a case for the observed bull/bear struggle. It would be interesting to see if there's a correlation between candidate popularity (as determined by polls) and stock market movement.
If my theory does indeed have merit, then I'm expecting the market to be bumpy until the polls show that one candidate has a clear lead over the other (which may be right up until the day of the election). However, my theory could be completely wrong as I would expect this uncertainty to be reflected in the VIX. Increasing uncertainty would point to a rising VIX but instead the opposite is happening, and for that I have no explanation unless the indicator itself is lagging reality. Not likely but stranger things have happened in the market...