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Why Stocks Love Scott Walker

Wisconsin Governor, Scott Walker
Jewel Samad | AFP | Getty Images
Wisconsin Governor, Scott Walker

You didn’t see it in the mainstream financial media Wednesday morning. But stocks loved Governor Scott Walker’s spanking of public-sector unions and Democrats in Wisconsin.

The Dow jumped about 165 points right at the opening on Wednesday, and was up over 200 points later in the day. There really was no other news. There was some speculation about central bank stimulus in Europe and the United States. Blah, blah, blah. But there was nothing specific or concrete.

So it’s an easy point to make: Markets love the Scott Walker landslide.

Tuesday night on The Kudlow Report, two investment gurus predicted a bullish market if Walker won. Art Hogan of Lazard Capital and Mike Ozanian of Forbes both forecasted a Walker rally. And that’s just what we got Wednesday morning.

The logic? Well, mainly, a big Walker win opens the door to a Wisconsin victory for Mitt Romneythis fall. Think of Walker as the leading indicator for November.

Noteworthy in the Walker victory was a huge GOP get-out-the-vote ground game, set up by Reince Priebus, the Wisconsin native and Republican National Committee chairman. Priebus said he was confident that the superior ground game will be there in November for Romney. And if Romney takes Wisconsin, it could be Katy bar the door for a national GOP landslide.

But the other bullish point is that stock market investors prefer low taxes to high entitlement spending. The grassroots taxpayer tea-party revolt that carried Scott Walker to victory is alive and well around the country. (By the way, in California, San Diego and San Jose just voted in government-union pension cuts.) Collective-bargaining restraint, higher co-pays for pension and health-care benefits, and an end to mandatory dues-paying for Big Labor’s political slush funds are all bullish policies that come out of the Scott Walker win. So is a huge drop in government-union membership in Wisconsin.

Public-sector unions are in retreat.

The stock market is a gauge of future economic growth. Balanced budgets without income-tax hikes in Wisconsin, plus lower property taxes as a result of Scott Walker’s leadership in curbing government-union excesses, is a national message for economic growth.

And at the national level it seems clear that Mitt Romney gets all this. He gets smaller government, Social Security and Medicare reform without tax hikes, and quite possibly pro-growth tax reform. In other words, Romney understands the game-changing nature of the Scott Walker victory.

Remember this: Stock owners who make up the massive investor class — roughly 100 million people — are among those most likely to vote in the November election. That’s what history shows. So a union-rollback, low-tax, limited-government, pro-growth message is just what the investor class wants. That is a Romney message, not an Obama one.

Romney is almost universally regarded as the market-friendly, pro-business candidate. He got a big leg up Tuesday night with Scott Walker’s dramatic win. That’s why stocks surged on Wednesday.

Questions? Comments, send your emails to: lkudlow@kudlow.com

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