Economists think McCain would be better for stock market: Obama hurt by pledge to raise tax rates on capital gains and dividends

Source: http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080723/REG/963192885/0/TOC

July 23, 2008 10:07 AM ET

(Reuters)—The U.S. stock market would fare better in the first year after a victory by Republican presidential candidate John McCain than by his Democratic rival Barack Obama, according to a majority of economists at U.S. banks and research groups polled by Reuters.

But the survey of 29 firms taken alongside a regular Reuters economic poll also found that economists had mixed views on the two candidates’ economic plans.

On a scale of 1 to 5, with 1 being “very good”, 12 economists gave McCain’s proposals higher marks, while nine rated the two candidates equally and eight preferred Obama’s policies, according to the poll released on Wednesday.

The economy has supplanted the Iraq war as the main issue in the November presidential election between Arizona Sen. McCain and Illinois Sen. Obama.

The troubled housing market, tightening credit conditions and rising costs of food and energy have driven U.S. consumer confidence to a 28-year low.

The survey, conducted this week, found that 21 of the economists polled thought Mr. McCain would be better for the stock market in the first year after the election, while six chose Obama and two gave no response.

The sample includes a cross-section of U.S. financial institutions, large and small, including several prominent Wall Street names.

For investors, a key concern this election year is taxes on dividends and capital gains, which Mr. Obama has pledged to increase. He also favors allowing income tax cuts enacted under President George W. Bush’s administration to expire, while Mr. McCain wants them made permanent.

“Preserving the capital gains and dividend tax rate (at) 15 percent is in my view very important to investors and therefore very important to Wall Street,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York, explaining why he thought stocks would fare better under a McCain presidency.

Mr. McCain has said the Treasury Department and Federal Reserve’s steps to shore up troubled mortgage finance companies Fannie Mae and Freddie Mac were correct and he hoped Congress would approve them.

Mr. Obama said any action to rescue Fannie and Freddie should be aimed at helping homeowners and not just shareholders, managers and investors.

Mr. Obama has called for a $50 billion economic stimulus package on top of the $152 billion plan passed earlier this year. McCain has proposed low income taxes and incentives for small businesses as ways to boost the economy.

A Reuters/Zogby poll released last week showed that just 10% of Americans gave the Bush administration positive marks for its handling of the economy.

The poll also found that Mr. Obama held a 7-point lead over McCain in the presidential race, and had a small edge on the question of who would best manage the economy.