NEW YORK (Reuters) - Wall Street is more worried about high unemployment than the makeup of Congress or the Federal Reserve’s next move, according to views from the market ahead of next month’s election.
That said, extending tax cuts and lifting growth should be the top priorities of the new Congress, according to a Reuters poll of 53 financial analysts, money managers and trading firms.
Repealing the recently-passed financial regulation law was less of a priority for Wall Street. Just three of 53 respondents said scrapping the bill should be one of two top priorities, despite months of vocal opposition.
The poll shows Wall Street has lower unemployment as by far the most important factor in improving the business climate, followed by increased consumer confidence. Those two factors trounce more Fed action and even a stock market rally.
The U.S. economy endured an 18-month recession ending in June 2009, the longest since the Great Depression, but growth since then has been anemic despite attempts by the Obama administration to stimulate the economy through a combination of spending and tax breaks.
The latest Reuters poll of economists shows expectations for a meager 1.8 growth rate for gross domestic product in the third quarter and 2.1 percent in the fourth quarter.
“If the bills and the policies which had been promulgated by the Obama administration had produced extraordinary growth in our economy, I don’t think we’d be having these conversations about the mid-term elections ... that is the overriding theme,” said Dan Ripp, analyst at Bradley Woods & Co in New York.
All seats in the U.S. House of Representatives and 37 seats in the Senate are up for grabs in the midterm elections. Both houses are currently held by Democrats.
Expectations are for the Republicans to win at least the House. Some say the market has built in such expectations in its recent September rally, and two-thirds of respondents say the market will rally at least modestly if Republicans win one House.
A mid-September Reuters/Ipsos poll showed Republican voters are more enthusiastic about the coming election.
Such an outcome would give Republicans more power and make it harder for Democrats to push their agenda.
In a question about which two issues the Republicans should focus on after the elections, nearly two-thirds of respondents said extending President George W. Bush-era tax cuts should be a priority, while more than half said boosting economic growth should take top priority.
Democrats have said they want to extend tax cuts for the middle class but let tax rates revert to higher levels for those making at least $250,000 a year. Republicans want tax breaks extended across the board. All the tax breaks will expire at the end of the year without action from Congress.
Just over a third of respondents pointed to reducing the budget deficit as a key factor, while more than a quarter wanted Obama’s signature healthcare overhaul repealed.
That contrasted with just 6 percent of respondents who thought repealing financial reform should be a priority. Wall Street firms fought the bill’s passage, and the measure was largely passed without Republican support.
If the budget deficit is not addressed, then more than two-fifths say interest rates will start to rise and the dollar will weaken.
The employment situation remains by the far most important issue for Wall Street. More than 75 percent of respondents cited that as a priority in improving business conditions. That was followed by boosting consumer confidence, mentioned by 41 percent.
The latest official data in September showed unemployment remains stubbornly high at 9.6 percent. Jobs were lost in the public sector, while private sector hiring remained subdued.
Stocks rallied after the latest employment data on expectations it would make it more likely the Federal Reserve could introduce a massive program to buy vast quantities of U.S. Treasuries. Despite this, only a fifth of respondents named additional action by the Fed as one of the two most important factors in improving business conditions.
More than half of respondents said the stock market will continue to rally modestly if Republicans win the House, while 10 percent think there will be a sharp rally.
That compares with around a third who think stocks will be little changed in the event of a Republican win, and just one respondent who thought stocks will sell off sharply.
The latest Reuters poll of stock-market analysts expect the S&P 500 to end the year at 1,195.
The S&P 500 has rallied more than 10 percent since the beginning of September, partly on signs of improvement in the economy and partly on hopes the Fed will take more steps to stimulate growth. Some analysts say the market is also pricing in the prospect of a Republican win.
In the event of the Democrats hold both houses, about 70 percent of respondents expect stocks to fall modestly or sharply, with expectations split between those two outcomes.
A fifth of respondents said stocks would be little changed if the Democrats hold both houses, while nearly 8 percent expected a modest rally.
Reporting by Edward Krudy; Polling by Kevin Kumar and Yati Himatsingka in Bangalore; Editing by Padraic Cassidy