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The Dow Rebounds

One of the nice things about being a Democrat with a stock portfolio is that your risks are fairly well hedged. If the market goes up, then you make money, and if the market goes down, then you’re more likely to see a Democrat elected President.

But seriously, folks.

Does the stock market rally of the past two days benefit McCain? Maybe a little, but I doubt all that much. For one thing, as I said yesterday, I’m not sure that Obama’s bounce over the past couple of days has all that much to do with the economy. I think it also has to do with the electorate looking for an “excuse” to move past McCain’s convention bounce, and the faltering perceptions of Sarah Palin.

Moreover, equity prices are just one small component of the economic picture. So too are relatively high unemployment, relatively high commodities prices (particularly for food and fuel), declining home prices (which won’t be going back up any time soon), foreclosures, and difficulties in borrowing (which have still yet to fully penetrate into the retail sector). Investors who put money into the Dow a year or so ago have still lost a lot of money. And I would guess that consumer confidence is what economists would call “sticky upward” — it tends to fall in big chunks when it falls, but recovers more slowly. And all of this is assuming, of course, that we are through the worst of the financial crisis, which is very much not a foregone conclusion.

Besides, the collapse of Lehman Brothers and AIG was not so important unto itself. These are Wall Street companies, not Main Street Companies, and unless Americans hold their stock or have friends or family who work for them, their troubles probably did not hit home. But they gave Obama a reason, an excuse, to talk about the economy, which given the sluggish performance of other economic fundamentals, may have been all that he needed.

Nate Silver founded and was the editor in chief of FiveThirtyEight.


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