Wall Street's bipartisan vote
With all the intense economic uncertainty in 2008, classic Wall Street party allegiances may not apply.
NEW YORK (CNNMoney.com) -- The race for the White House is heating up.
Republican Sen. John McCain, after a strong showing on Super Tuesday, moved closer to the nomination Thursday when former Massachusetts Gov. Mitt Romney announced he was suspending his campaign. On the Democratic side, Sens. Hillary Clinton and Barack Obama are in a close contest.
But as investors face the toughest economic environment in years, experts say Wall Street is eager for what has become the most used word on the campaign trail: change.
Investors usually prefer the Republican party, which is seen as favoring tax cuts and other legislation that is more supportive to Big Business. But eight years of the Bush administration has left many players in the financial services world feeling that even a Democratic president may not be as unsavory to Wall Street as it has been in the past.
"I think Wall Street may be disenchanted with the current conditions under Bush, and like many people, [investors] are concerned about the economy," said William Rutherford, president of Rutherford Investment Management in Portland, Ore. Rutherford is Oregon's former state treasurer and a Republican.
On one hand, the most experienced candidate winning the White House would cause the least concern, said James King, chief investment officer at National Penn Investors Trust.
That would be Clinton for the Democrats and McCain for the Republicans. But King said McCain would probably be "the safest candidate for Wall Street" since he would be the less likely "to create an environment that is difficult for business."
Business leaders feel more comfortable with Republicans in general, Rutherford said. Yet, it's telling that the financial contributions from Wall Street are currently going more toward the Democrats.
Following the money.
Clinton and Obama have both raised more money overall than the leading Republican candidates, according to recent year-end campaign finance reports. (Full story).
Clinton and Obama have also raised more money from big investment firms - including banks, hedge funds and private equity shops - than their Republican counterparts.
That marks a reversal from the last two elections, when financial companies funneled more of their money toward the Republicans. It also marks a return to the funding trend of the 1990s, when Wall Street's donations to Bill Clinton's campaigns topped that of his Republican rivals, according to the Center for Responsive Politics.
Big Wall Street firms are donating money to the Republicans too, which could suggest that market makers are simply hedging their bets, rather than showing a preference for Democrats or any lack of enthusiasm for the Republican candidates.
Romney received bigger donations from Wall Street firms than McCain. But McCain is expected to be the Republican candidate now that Romney has dropped out.
"It's political expediency to cover all bases and to attempt to have an input in the policy and structure of the economy and the country," said Ned Riley, chief investment strategist at Riley Asset Management. Riley is a Republican.
But the increased flow of cash from Wall Street to the Democratic Party may also be a sign of the increased insecurity about the economic outlook. Trying to fix the credit and housing market meltdown is certainly a bipartisan issue.
Sure, Wall Street likes tax cuts and other purportedly Big Business-supportive policy, said Barry Ritholtz, CEO and director of equity research at FusionIQ.
But he said investors realize the problems in financial markets and the economy are about more than just whether or not the Bush tax cuts are made permanent. Ritholtz is an Independent.
Ritholtz said Clinton is unique in that she's "polarizing" and may not appeal to Wall Street. But he said a lot of Democrats on Wall Street are saying they could live with McCain in the White House and Republicans are saying that they could live with Obama.
"The fact that we are talking about the possibility of an Obama presidency tells you how bad the economy is," Ritholtz said.
Still, Riley said tax policy remains a big issue for Wall Street, giving the Republican Party and, most likely, McCain the edge. (For the top four candidates' tax proposals, click here.)
Eye on defense, energy and big pharma.
Individual stocks and sectors, rather than the overall market, are where a bigger impact will be felt, said Yingmei Cheng, an associate Professor of Finance at Florida State University.
Her research into the stock market reaction to the 2004 election shows that an individual presidential candidate's policy platform matters beyond his/her party affiliation.
Generally, the issue is "what sectors will see more resources directed at them (which should be good for stocks in that sector), versus less," wrote Michael Ferguson, associate professor of finance at the University of Cincinnati, in an email to CNNMoney.
From looking at their stated views, it would be fair to assume that defense industry stocks would do better under McCain than Obama or Clinton, he wrote, although regardless of who wins, defense spending is likely to stay strong.
Similarly, drug stocks would probably do better under McCain than Obama and Clinton. The same is likely with insurance and health services companies. That's partly because McCain is against federally-mandated universal health coverage and Obama and Clinton are both for it.
Looking for gridlock.
November's Congressional elections are as relevant to Wall Street as the presidential one, said Bill Stone, chief investment strategist at PNC Wealth Management.
Stone said the Senate race is particularly relevant. The Democrats currently have a narrow majority but with more Republican seats up for grabs, that majority could expand.
"In terms of legislation, you need the Senate," Stone said. "So actually, the Congressional elections are more likely to be of interest to Wall Street."
Ritholtz said historically, having one party in the White House and the other controlling Congress has been the best case scenario for investors. (For details, click here.)
"Single-party rule ends up with extreme results that the market doesn't like," he said. "But with one party controlling Congress and one in the White House, everybody has to hustle and it forces everyone to the middle, which is better for stocks."