Just too close to call

Most voters have yet to cast their ballots, but investors have already placed bets indicating who they think will occupy the White House for the next four years.

The trouble is, the markets are predicting as close a race as the pollsters are.

Historically, the performance of stocks in the month before an election has been a strangely accurate indicator of whether an incumbent president wins reelection. The Dow Jones industrial average was down 0.52 percent for the month of October, in a bearish sign for President Bush, according to technical market analysts. His father, George H.W. Bush, lost his reelection bid after the Dow slipped 1.4 percent in October 1992; Bill Clinton won a second term in 1996, with the Dow rising 2.5 percent in October.

"Bush is right on the edge," said Ken Tower, chief market strategist for CyberTrader Inc. "In the past, when we've seen declines of more than half a percent, the incumbent party has lost."

Tower cautions against giving too much weight to small data points, yet notes that the market is nothing if not a reflection of public sentiment. The Dow is 9 percent lower than it was four years ago, on election day, he said; the last time it slumped over the same four-year period was under Jimmy Carter.

The Dow, which is made up of 30 blue-chip stocks and is the mainstream barometer of the markets, closed yesterday at 10,027.47, down 4.1 percent in 2004.

Last Monday, the index hit a 10-month low, but then stocks rallied strongly for two straight days, with gains exceeding 100 points -- surprises amid an otherwise listless period.

In a week of oddities, from a Red Sox World Series romp to a lunar eclipse, this was a final murky clue about the election, Tower said: "The market is simply saying that this is likely to go right down to the wire."

The University of Iowa's electronic futures market, an apt predictor of past races, yesterday had Bush with a 53 percent chance of winning; Kerry was at 47 percent.

The odds have tightened considerably since late summer, when Bush led with 70 percent. Only a week ago, it was Bush at 60 percent, Kerry at 40 percent.

Michael Vogelzang, president of Boston Advisors, which oversees $2.5 billion in investments, suggests that since September, we've been in a "Kerry bear market," where Wall Street has factored in a worst-case scenario for stocks that might be under pressure if Kerry were to win. Healthcare stocks in the American Stock Exchange's healthcare index are down 3 percent since Oct. 6, the date Vogelzang pegs as a gain in momentum for Kerry. They are down 6.5 percent in 2004. The index includes pharmaceutical companies as well as hospital entities and healthcare providers.

The stocks of publicly traded brokerages and Wall Street firms were down 1 percent for the year until last week's rally, which may reflect conventional wisdom that Democrats are bad for the stock market. The mini-rally may have been a vote for Bush; Wall Street stocks are now up 2.7 percent for the year.

Oil stocks have surged 23.6 percent in 2004, mainly due to the war-driven rise in oil commodity prices, Vogelzang said. Benjamin Howe, managing director of America's Growth Capital, a Boston-based investment banking firm, said the race is so close that traders have discounted factors related to both candidates, "whether it's that Bush is going to take office and we're going to have more international troubles than we'd like, or Kerry's going to take office and we're going to crush the pharmaceutical companies."

So long as the nation wakes up to a decisive victory by one candidate or the other on Sept. 3, Howe said, the market will surely rally in relief. "Just to have that behind us is a big positive," he said.

Virtually everyone agrees the race is too close to call. John Lynch, chief market analyst for Evergreen Investments in Boston, thinks the market would be more gloomy in anticipation of a possible Kerry victory, but for expectations that Republicans may gain seats in the Congress. Said Lynch, "Investors believe gridlock is good." For anyone looking for a sneak peek at the election results, Towers, of CyberTrader, offers this tip: Check the market at the close on Nov. 2. Since 1984 (before that, markets were closed on election day) an up-market on election day has indicated a win for the incumbent. "You don't need to stay up until 3 a.m. or wait two weeks for all the hanging chads to be counted," he said.

Beth Healy can be reached at bhealy@globe.com.