Investor Headache: Unexpected Market Ripple from Romney-Ryan

Investors have been closely watching the Republican National Convention hoping for signs that Mitt Romney and Paul Ryan could gain traction with the American public.

The stock market has hardly moved over the past three days as pros digest every word of every comment made in Tampa.

In fact, the S&P has been trading in a fairly tight range over the last three weeks, finding support at 1,400 but unable to trade much above the April high of 1,422.38, a level of resistance.

The conventional wisdom is that as the party of business, if the Republicans can pull ahead and win the White House, the S&P will surge.

However, that may not be the case this time around.

Ahead of the broadcast, top hedge fund manager and Fast Money trader Keith McCullough of Hedgeye explained to us that “Paul Ryan’s speech had a big impact on global currency markets. It stopped the US dollar from going down.”

In part, that's because Ryan is known for aggressive budget plans that slash government spending and lower taxes. And in his speech before the RNC on Wednesday, he reiterated his call for government to stop spending money it doesn't have.

"In a clean break from the Obama years, and frankly from the years before this president, we will keep federal spending at 20 percent of G.D.P., or less," he promised. "That is enough."

As patriotic as that may sound, “what’s good for America’s currency, in the short-term, is bad for the stock market.” Very bad.

A strong dollar makes commodities nominated in dollars more expensive for buyers using other currencies. In turn a strong dollar drags down resource related stocks as well as energy .

Ultimately the market sells off.

Looking down the road to November, McCullough also said, “If Romney/Ryan were to (pull ahead) and win the election, the Street would expect that Bernanke is out – and again the USD is up."

The result would be an even stronger US dollar.

That means, unless the current relationship between the S&P and the dollar chages a GOP win could send market tumbling.

McCullough also told us, “Oil and gold would fall hard." Again these are commodities nominated in dollars.

However, long-term he sees a positive. "US consumption growth (ie the 71% of GDP) can actually start to occur sustainably again. In the long term a strong dollar means a strong America,” said McCullough.

And McCullough added an important caveat. “Markets are interconnected and dynamic, so anchoring on 1 factor like that is not how I invest.”

Tune in:

"The Kudlow Report" airs weeknights at 7 p.m. ET.

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