UBS Wealth Management recently released its first in a series of five Election Watch 2012 reports designed to guide investors through the critical issues and developments of this pivotal year for the political landscape.
The first report, written by Mike Ryan, chief investment strategist and head of Wealth Management Research-Americas, and Kurt Reiman head of Thematic Research Wealth Management Research-Americas, delves into the economic and financial market trends that could hinge decisively on the outcomes. The report also examines the issues fueling political debate and facing the ultimate winner of the presidential election and the 113th Congress; studies the relationship between certain measures of economic activity and the margin of victory/defeat by which an incumbent president wins/loses re-election; and takes a first look at the impact of potential election results on financial markets.
Read on for UBS’ 11 predictions as we head into the election year encompassed in three main themes: the election outlook, policy issues and market implications.
1) UBS predicts President Barack Obama will win a second term. Improving economic conditions and firming job approval ratings should help the president win the election.
2) Republicans appear poised to win a narrow majority in the Senate and to retain a slimmed-down majority in the House.
Heading into the election, Democrats hold a narrow 53-seat majority (which includes two Independents who caucus with the Democrats) in the Senate. Of the 33 Senate seats up for re-election in November, 21 are held by Democrats, two are Independent and 10 are Republican.
With the entire House up for re-election, Democrats would need to pick up 25 seats from Republicans in order to regain the majority. This would appear to be a pretty daunting task. Keep in mind that congressional redistricting following the release of the 2010 Census data largely benefited Republicans, since the population rose in predominantly Republican-leaning states and declined in states that tend to support Democrats.
3) Expect continued gridlock, since Senate Democrats will likely retain enough seats to prevent the passage of major legislation. With broad philosophical issues about the size and role of government, compromise seems unlikely.
Republicans have a chance to gain a majority in both houses, but without a large enough margin to overcome a filibuster in the Senate, the parties will still be sharing power.
4) Economic policy will be central, especially job creation. While the president favors more stimulus spending, Republicans prefer tax cuts. Housing policy will also remain unresolved, but UBS doubts the crux of the issue–negative equity–will be addressed.