Halloween is well over but the pin-drop silence on the financial markets today was downright eerie. On one hand, a calm trading market is welcome relief after six weeks of extreme volatility. On the other hand, will tomorrow's election usher in a new period of market jitters, with today's placid calm only a short-term event?
I figure that the stock market has priced in an Obama election victory, although no investor I know is happy about Barack's plan to tax both small businesses and investors (via a hike in the capital gains tax). The wild card is if McCain pull off the upset, which I doubt (although he'll keep it close). Then I'd look for a stock market liftoff that could last for months. Why? A McCain win would guarantee gridlock with a Democratic Congress and increase the chances of the markets correcting themselves without too much market intervention.
Going forward into 2009, the stock market will not react well if either candidate assumes office and immediately hikes taxes.
"The first thing to do will be to get an economic plan that everybody agrees on in place and start restoring confidence to the market," says Peter J. Tanous, president of Lynx Investment Advisory in Washington, D.C., and co-author of "The End of Prosperity," a book that examines the extent to which higher taxes will decimate the economy. "That's clearly job one."
Tanous, an Obama supporter, says raising taxes, even on the rich, will seriously injure sectors like technology that rely on investment to keep the motors churning. "I hope that, and I frankly fully expect that, all this talk about raising taxes is going to disappear, because raising taxes of any kind in this kind of environment would be catastrophic."
Back in the tech sector, more numbers are out on Internet advertising spending for 2009 - a bellwether for the entire economy in 2009. According to Imran Khan, JPMortgan tech analyst, Internet advertising worldwide is now expected to grow at a slower rate of 25 percent in 2008 compared with earlier projections of 28 percent. Things look bleaker for 2009, with 13 percent growth compared with an earlier forecast of 19 percent growth.
Says Khan; "Overall ad budgets continue to weaken. Since we reduced our estimates on September 4, we have seen a further slowdown in the economy, particularly in the last two weeks of the third quarter. Weakness continued into October and spread from the U.S. and U.K. throughout continental Europe and Asia. Additionally, dollar strength was greater than expected which will further depress growth rates."
Domestic growth here in the U.S. should soften, as well, Khan adds. He estimates that the U.S. market for online ad spending will hit 11 percent to $7.95 billion for the 2008, compared with previous expectations of 14 percent growth. Things could get better in 2009, as Khan sees a 6 percent increase, albeit down significantly from earlier projections of a 16 percent growth.
That's why the tax issue is so important. With the economic situation so precarious, why toss a cinder block in the form of higher taxes into a coat that's barely treading water? Hopefully, cooler heads will prevail in Washington - but don't count on it.