You may recall Emily Litella misunderstanding that there would be an election.You have probably also heard that the election results may not all be in right away. I don't think too many people envision a post 2000 election rerun, but it may be worth taking a look back at the market action then and think about what might happen now.
In 2000 Election Day was November 7. The S&P 500 closed that day at 1431 down about a point. On the 8th, when there was no winner the market fell to 1409, about 1.5% drop. The market bottomed on Dec 20 at 1264, an 11.67% decline before starting to work its way higher. On November 9 of that year the market fell 2.5%, yikes!
An uncertain election result was a new thing for the market when it happened in 2000. If there is some period of uncertainty this time around with who holds congress or the senate it makes sense to think there could be some negative market reaction but since we just had something similar six years ago with a presidential election I do no think it makes sense to fear a decline of the same magnitude.
The market fears the unfamiliar. The last time around there was squabbling and two months of uncertainty, we know what that feels like, the impact will be less, if it even happens.
4 comments:
I think the market has factored in the Dems taking control of the house weeks ago. The only suspense is who will control the Senate, and that probably won't matter much anyway. We will likely see gridlock across the board as both parties posture for 2008. The only movement we might see is on the immigration front - something both business and labor wants.
All that said, I believe the market is close to a high water mark. By 2008, the Republicans might be saying "see what happened to the market/economy when the Dems took control of the house?"
Just got back from voting and my opinion is similar to Tom K's: the probability of a Democratic victory, in the House at least, is pretty much factored into market prices and the upward (but still rather narrow) bias in those prices would appear to indicate a lack of worry concerning that outcome. But then I've noted before that there appears to be a general lack of fear in this market, something that continues to puzzle me.
Jim Cramer opined yesterday that investors should get out of the market until the election outcome is determined, opining further that the worst that could happen is they will have to buy back in at higher levels; thus far the 'worst' appears to be the more likely outcome.
I've seen lots of speculation and some good research-based discussion (e.g., http://tinyurl.com/swpcf) about why the market and/or economy might do better when a specific party is in power but I haven't seen any discussion of what the rest of the world might think of that and, given the increasing amount of foreign capital at work in our markets (cf. http://tinyurl.com/y6zt2o), that frankly puzzles me too.
The more interesting question I suppose is what happens when the market factors in the probability that the Democrats, assuming they win, aren't going to be able to do much to change the current economic situation. As Tom K comments also, the probability the market can climb much further does not seem high, but to be honest I thought that was the case all the way back in May so clearly my opinion should receive an appropriate discount in that regard!
Our VA election is still a nail biter though it appears (pre absentee voter count) that Webb won. We'll see. It is likely to get darker before the clouds clear.
TK's "By 2008, the Republicans might be saying "see what happened to the market/economy when the Dems took control of the house?"--is a view that I have sardonically held. Given that Cheney was talking up the market and the Administration's contribution to that, then I suppose letting gravity take it's toll would not seem surprising (and these markets have levitated as if there were no gravity).
Not an historian and do defer to historians of the street...but, my sense is that politics is noise, short term volatility that can offer opportunity as long as one knows the longer term trend. Personally, betting for an opportunity to buy long and that the market will sustain a good bullish outlook.
The Virginian on board: I like Webb, know him from his books, does he have the ability to be as thoughtful,reflective, and intolerant of beltway crap that I would hope he is? I've gotten excited before about political figures only to be disappointed.
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