The recent downturn in the stock market has been blamed on the credit crunch which resulted from the downturn in housing sales, construction and prices. However at least a portion of the slump should be attributed to the rising prospects of a Democrat victory in the 2008 U.S. Presidential elections. But why would the market look so unfavorably on a Democrat president since the market benefited from our last Democrat in the White House?
Well there is no “Bill Clinton” among the front runners. (although Clinton did raise taxes in 1993). That is each has voiced support for increasing taxes once in office. . In the name of fairness, presidential candidates, Clinton and Obama have said they would let President Bush’s 2001 tax cuts lapse for families earning more than $250,000. Edwards goes further, saying he would repeal the Bush tax cuts, and not just wait for them to expire for households earning more than $200,000. And, speaking at a Senate Finance Committee hearing, the fourth ranking Democrat, Senator Schumer from New York, reiterated his opposition to any tax hike on capital, saying it would unfairly hurt New York's economy. But he indicated he was willing to tax high income Americans who earn their incomes via wages. So there does appear to be agreement among the four in terms of more heavily taxing high income WAGE earners, thus allowing lower income individuals, and high income CAPITAL recipients to continue to pay less than their proportionate share of the federal tax burden.
So investors across the globe see all of this as a threat to the U.S. economy and to the U.S. stock market. If my hypothesis is correct, the market will not begin a significant rebound unless and until we are assured that a Republican will win the elections of 2008.