Since the first presidential debate last Wednesday, the stock market has fallen even though Wall Street's preferred candidate, Mitt Romney, won that debate and erased President Barack Obama's small lead. In the latest polls, Real Clear Politics reporting that Romney leads on average 47.6% to 46.1%.
Thursday night's Vice Presidential debate between Vice President Joe Biden and Rep. Paul Ryan could potentially have an impact as well.
"Instinctively the conventional wisdom is if a Republicans does well or better in the polls, the market should rally, " says Wall Street Journal special reporter Greg Zuckerman.
The fact that the market hasn't rallied may be because it's focusing instead on what a Romney victory could mean for Fed policy, specifically its near zero rate policy which has helped rally stocks in the past year. That "theory, " says Zuckerman, stems from Romney's vow to not reappoint Fed Chairman Ben Bernanke when his term ends January 31, 2014. A Romney win could mean less "funny money" to help pump up the stock market.
While Wall Street typically prefers a Republican in the White House, since Obama took office in late January 2009 the stock market has surged.
Why then do many folks on Wall Street dislike Obama?
It's personal, says Zuckerman. "They feel insulted by President Obama" who's been critical of Wall Street and say he should have focused more on the deficit and the economy rather than health care reform.
But, again, the financial markets have done quite well under Obama.
Since he reappointed Bernanke to a second term starting in February 2010, the S&P 500 (GSPC) has gained 32% and the Barclays 10-20 year Treasury index ETF has risen 24.7%.
The bailout of banks and the auto industry that President Bush began but Obama expanded helped stabilize both industries, according to many analysts and economists. And according to ProPublica, more than two-thirds of the $603 billion spent has been returned to taxpayers plus profits from dividends, interest and other earnings.
Obama did push for tougher bank regulations to reduce the high leverage ratios that contributed to the financial crisis, but he didn't call for the return of a tougher Glass-Steagall-like law, which separated commercial banking from investment activities. Nor has he called for Goldman Sachs and Morgan Stanley to give up their conversion to bank holding companies, done during the financial crisis, which gives them access to the Fed's borrowing window and federally insured deposits.
These policies helped to save the financial industry and in the process created even stronger, more powerful banks, which may create more risks, but is not necessarily a result Wall Street would oppose.
Standard & Poor's compared the historical performance of the stock market, corporate earnings and the economy under Democratic and Republican presidents and found all three did better when a Democrat occupied the White House. The S&P 500 gained an average 12.1% per year since 1901 versus 5.1% under Republican presidents; GDP increased an average 4.2% annually since 1949 compared to 2.6% under Republicans; and corporate profits since 1936 rose 10.5% a year under Democrats compared to 8.9% under Republicans.
Under Obama, the stats on the economy aren't as good but for stocks and earnings they're even better. GDP has gained an average of just 1% a year but corporate profits have surged an average 51.8% a year and the S&P has rallied 12.3% since his inauguration.
"You can give Obama credit for helping to stabilize the market and the economy, " says Zuckerman. "Hedge funds are making money again."
He advises investors not to bet their portfolio on either an Obama or Romney win but says certain sectors will do better under one than the other.
Energy and defense stocks could advance under Romney; health care under Obama.
No matter who wins the election, says Zuckerman, the challenge is whether a compromise can be forged to avoid the fiscal cliff of big spending cuts and tax increases as well as tax reform.
More From The Daily Ticker
Check Out Yahoo! Finance's Breakout