A Short Note on Election Markets and Unpredictability

SeanInsights, Recent Highlights

Regardless of how you voted this election cycle, the last two days show just how difficult it is to predict what the market might do given a specific event occurring (never mind how difficult it is to predict a specific event itself). In the weeks leading up to the election, the US market was down nine days in a row on fears that the election might be slipping away from Hillary Clinton based on the FBI reopening the investigation of her emails. Then, on news of the FBI essentially saying, “nothing to see here”, the market stabilized on Monday and Tuesday of this week. Taken together, those 11 days in the market would seem to have indicated that the market would look favorably on a Clinton win and negatively on a Trump win, and as the election results came in Tuesday night, US and global stock market futures plummeted, down 850 points at one point on Tuesday night…again seeming to confirm the assumption that the market would tumble on a Trump win.

But, as the market has a way of doing, it confounded nearly EVERYONE on Wednesday, rising 256 points, and again today, as I write this, up another 163 points. The lesson to take from the last several days is *not* that markets tend to do better under republicans than under democrats, as that is a very mixed bag of results (and keep in mind, markets have risen more than 10,000 points over the last 8 years). The point IS this: even if you know what is going to happen (i.e., Donald Trump would win) — and of course, even that would have been impossible to know in advance with any certainly — knowing that doesn’t tell you what the market might do in reaction. I think most — probably even many, if not most, who voted for Donald Trump — are surprised in light of the market’s behavior in the two weeks leading up to the election.

So, that all said, remember that trying to outguess the market is usually an exercise in futility, and any time spent doing so would probably be better spent (and perhaps at a much lower cost) at a blackjack table in Vegas.