US Presidency: Election Results Impact German Stock Market

The outcome of the US presidential election will have a greater effect on the US stock market than on the US bond market. This is the result of a study conducted by the Centre for European Economic Research (ZEW), Mannheim, among 400 financial experts in September 2000. At least 40 per cent of the survey participants expect the elections to also have an impact on the German stock market – depending on the outcome.

If the Republican candidate George W. Bush wins the election, 52 per cent of the experts expect a rise in the US stock market. Apart from his planned tax cuts, this is probably due to his proposal to allow a portion of each employee's payroll taxes to be invested in the stock market. By contrast, 60 per cent of the financial experts expect no significant impact on the stock market should Democrat Al Gore win the election. This is consistent with the experience that Wall Street tends to favour a Republican administration. With regard to the German stock market, the survey reveals an ambiguous picture. While 40 per cent of the financial experts think that the outcome of the US presidential election will have an impact on the German stock market, 56 per cent expect the market to be left unimpressed by the vote.

According to the survey participants, the US election will have a much lesser impact on the US bond market than on the US stock market. The prospects of a partial repayment of government debt has caused prices for long-term Treasuries to rise in the past few months. This trend could be reversed if Bush wins the election, since his proposed tax cuts will not significantly reduce the supply of US government bonds. Accordingly, one quarter of experts expect prices of US bonds to fall in the event of a Republican victory. In the event of a Democratic victory, only ten per cent of the survey participants expect a fall in prices since vice-president Al Gore plans a greater reduction of government debt.

Contact

Birgit Sasse, E-mail: sasse@zew.de

Dr Felix Hüfner, E-mail: huefner@zew.de