Debating the Election’s Cause and Effect on Wall Street

Some market participants who are generally supportive of Mr. Romney’s economic policies, including the influential strategist James Bianco, argue that his rise in some polls since the first presidential debate, on Oct. 3, has been a drag on the markets because of Mr. Romney’s opposition to the Federal Reserve’s efforts to aid the economy with monetary stimulus.

The market returns over the last two weeks provide some support for this minority view. Leading American stock indexes fell 1.5 percent in the seven days after Mr. Romney delivered his strong performance in the first debate and began to rise in some national and swing-state polls.

Tying the movement of the markets to one thing, like the election, is difficult and dangerous. And there is no shortage of other issues occupying investors these days, from China to the European debt crisis to American economic data. But the tightening of the race in the last two weeks has led to more talk about the influence the election is exerting on the markets, and vice versa. The results of the second debate on Tuesday, and its effect on the polls, will only increase the conversation.

Even strategists who don’t see Mr. Romney’s prospects influencing broad stock indexes say the candidates’ changing fortunes have hit asset prices in more subtle ways, in specific sectors that could be helped or hurt by a change of administration.

“By and large, white-collar finance people want to see Romney in there, but there are a number of subplots within that,” said Jack Ablin, the chief investment officer at Harris Private Bank.

Perhaps the sector that has seen its fortunes buoyed most clearly by the Oct. 3 debate is the coal industry, which won a mention from Mr. Romney onstage when he said: “I like coal. I’m going to make sure we’re going to be able to burn clean coal.”

The next day, coal companies in the Standard & Poor’s 500-stock index halted a slide that had lasted most of the year, and began to rise while the broader market was falling. Since then, coal stocks have been up as much as 20 percent, more than any of the 154 other sectors in the index.

Mr. Ablin said that along with other developments working against coal stocks, like the increased availability of natural gas, coal companies had been hurt by President Obama’s support for alternative energy sources. Now, he said, they are being helped by the perception that Mr. Romney “is really more fossil fuels.”

Traders have not suddenly concluded that Mr. Romney is a sure bet for the White House — most prediction models still give Mr. Obama better-than-even odds of winning. But few people are more attuned to the subtle movements of polls than the number crunchers on Wall Street.

On trading floors, there is constant discussion and occasional wagering on the changing odds of the election outcome on Intrade, the betting Web site. After the first debate, Mr. Obama’s odds of victory on the site fell from about 80 percent to about 60 percent last Friday.

Mr. Bianco, the strategist, said at an investment conference last week that the pessimism overtaking the market was a direct result of Mr. Romney’s success after the first debate. He argued that investors had been scared off by Mr. Romney’s promise not to reappoint the current Fed chairman, Ben S. Bernanke, when his term is up in 2014. Mr. Bianco, no fan of the Fed’s current policy, said the market had become addicted to the Fed’s stimulus and was frightened by the prospect of losing it.

“The further that Romney surges, the more you could see the market struggle,” he said in an interview.

Jared Dillian, the author of a popular investing newsletter, said he, too, thought Mr. Romney’s success was worrying investors. In addition to Fed policy, Mr. Dillian said, investors are concerned about the budget cuts that Mr. Romney has promised.

“You can pretty much point to exactly that debate and when the stock markets started acting poorly,” Mr. Dillian said.