A reader asks:

A lot of bloggers, like Instapundit, have been mentioning that current good economic news does not seem to be helping the Republicans. I wonder, if markets continuously discount for future events, are the markets showing a preference for a power shift to the Democrats? If so why? Are they sensing a change in War on Terror strategy would reduce costs and associated risks? A possible reversal on tax cuts is warranted? Or is the market predicting any power change in Washington DC will be over shadowed by positive earnings projections etc.

There are two things here. Firstly, despite public perception, there is not an awful lot of good economic news to speak of and secondly, I would argue that most market movements are fairly immune to possible election outcomes. But that doesn’t mean that you can’t manipulate the economic news. Note Amity Shlaes’ comments earlier today:

The politicization of economics is especially evident in the blogosphere, where supposed economic Web sites are really about economics and politics advancing the agenda of one or the other party.

It is tempting to argue that surging stock markets are evidence that sound Republican economic policies are paying off, but such claims lack any empirical basis. Yes, it is an argument propagated by the right during a challenging election cycle for them, but those commentators should bear in mind that they would also argue, correctly, that Bill Clinton was in no way responsible for the stock market boom of the 1990s.

The uptick in the Dow that we have seen over the past few weeks is largely due to the fact that US equities as an asset class have been undervalued in recent years. This, judging from my own portfolio, applies in particular to the heavyweights that constitute the Dow Jones whose recent rise everyone got so excited about. The real estate boom – to some extent influenced by Bush flooding the market with cash – and rising commodity prices have contributed to the relative underperformance of stocks. Slipping commodity prices may benefit the stock market, but any recent gains are sure to be wiped out if the expected downturn in real estate materializes. Neither the Republicans, nor the Democrats will have any material influence on these developments which to a large extent are driven by global market movements. For now I would prefer to keep my eyes on Ben Bernanke, rather than rely on short-term market movements and a set of desperate politicians trying to interpret them to their advantage.