Mitt Romney's announcement for the selection of Paul Ryan as his Vice President and 2012 election running mate has sparked significant media attention. But what impact does a VP choice have on capital markets? Can Congressman Ryan have positive or negative influence on the economy and thus your brokerage account, your 401(k) and your household finances?
Vice Presidential Impact on Elections, Economy and Capital Markets
There is no doubt that Romney's VP selection of Paul Ryan, the Wisconsin congressman and chairman of the House Budget Committee and conservative fixture of the Republican policy world, makes a statement to voters about his agenda--to please the conservative right wing of his party and to clarify his position as a stark contrast to Obama's fiscal policies. But what can the selection of Ryan as VP do to help or harm Romney's election bid and what impact might it have on a presumptive Romney presidential term? The short answer is not much.
Historically, Vice Presidents have done little to nothing with regard to impacting elections. At the end of the day, people vote for the president, not the vice president. Therefore the presidential candidate's primary objective in selecting a running mate is to do no harm. If the presidential candidate is elected, Vice Presidents have rarely had significant impact on economic policy. Therefore the impact on the stock market is virtually neutral.
Market Timing and Presidential Election Cycle
Presidents and Vice Presidents do not control the economy and stock market. If politicians had real influence, there would never be recessions, gas prices would always be low, and the unemployment rate would never rise above 8.0%. However, there is some truth the presidential election cycle as a stock market indicator to the degree that sitting presidents will do their best to stimulate the economy in the third and fourth years of the term to help in their respective re-election bid. However, there is only so much a president can do with regard to willfully stimulate the economy, especially if Congress is not able to compromise on economic matters.
The greatest impact on the economy and stock market in the second half of 2012 will be uncertainty, which is the greatest enemy of the investor (other than him or herself). With no clear victor in sight, corporations and investors are likely to wait to make critical decisions about their money until after the election. Making significant moves with your mutual fund portfolio, based upon your guess about the election outcome, is nothing more than pure market timing. You will be better served now, and at any point in time, to follow the basics of building a portfolio and reviewing the complete guide on where to invest 2012.
In the specific case of Paul Ryan, it is likely that he will have indirect influence on the 2012 presidential campaign by helping raise money from ultra-conservatives who may not have fully embraced Romney by this point in the campaign. However the big picture view is that no Vice President or running mate has real impact on financial markets, no matter what their past ideological and financial philosophies have been.