Obama vs. Romney & the Fiscal Cliff

My informal poll of our accounts suggests that most of them believe that the US economy is more likely to go off the fiscal cliff early next year if President Barack Obama is reelected. That’s because there is likely to be more gridlock that will stymie a political compromise on government spending and taxation. If Mitt Romney wins, there might be a better chance of averting the cliff, especially if the Republicans keep their majority in the House and gain some seats in the Senate.

A couple of our accounts attributed the rally in stocks during the first four days of last week to Barack Obama’s campaign speech on Friday the 13th, in which he declared, “If you’ve got a business--you didn’t build that.” They perceived that it might somehow increase Romney’s chances of winning in November.

Earlier this summer, I expected a Romney-might-win rally during August. I’m wondering if it might have occurred last week. Romney seems to be on the ropes as Obama attacks him about his tenure at Bain and about his unwillingness to release his tax returns.

Of course, Obama’s chance of winning another term is likely to depend on the performance of the economy, in general, and the jobs market, in particular, in the next few months, especially in the swing states. Concerns about the fiscal cliff may be weighing on the economy already. If so, then Romney might win, which would increase the odds of averting the cliff. That might explain why recently released weaker-than-expected economic indicators haven’t been depressing stock prices. Last week’s retail sales report for June caused some Wall Street firms to lower their forecast for Q2’s real GDP. I expect an anemic 1.8% increase. Last week’s initial unemployment claims report for the week of July 14 showed a jump of 34,000, reversing the outsized 36,000 drop during the previous two weeks. June’s Index of Leading Economic Indicators was a downer. So was July’s regional business survey conducted by the Philadelphia Fed. The surveys employment index was especially weak.

For now, bad news about the US economy might not be all that bad for the stock market if many investors perceive that it reduces the odds of a second term for Obama and averts the fiscal cliff scenario. On the other hand, bad news coming out of Europe is still bad news, as we saw on Friday when stock prices sold off on the spike in Spanish bond yields. It's even worse this morning.

Today's Morning Briefing: The Sisyphus Solution. (1) The Great Trango. (2) Obama vs. Romney and the fiscal cliff. (3) Winning and losing scenarios. (4) Is the Romney rally over already? (5) Why bad economic indicators might be bullish for stocks. (6) King Sisyphus and Spanish bond prices. (7) The pain in Spain is spreading from the plain. (8) Bundestag wants less, not more Europe. (9) Mr. Henkel has an exit plan for Germany. (10) The Fed's Sisyphus. (More for subscribers.)