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Learning, Sharing, and Teaching => Investor Alley => Topic started by: gardenstash on November 05, 2020, 08:04:02 AM

Title: I don't understand the stock market's response to election uncertainty...
Post by: gardenstash on November 05, 2020, 08:04:02 AM
Can someone who knows more about this suggest a theory why the stock market is going up this week in light of the current uncertain Presidential election outcome? I thought the stock market didn't like uncertainty? As of writing this the DJIA is up 1,395 since Nov 2. Is it possibly related to the Q3 numbers? I'm no expert on this at all but am curious about potential theories.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: MDM on November 05, 2020, 08:35:54 AM
Could be many things.  One possibility: without one party control of the house, senate, and presidency, status quo on many tax and regulatory items is more likely than a lurch toward far-left or far-right policies.  Thus, "more certainty" and a stock market increase.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: PDXTabs on November 05, 2020, 08:42:04 AM
It's a bet that Biden will get the presidency while the Republicans keep the Senate. We'll have an adult at the wheel but he won't be able to push through any changes to the status quo. That's pretty much the definition of the stability that businesses crave.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: maizefolk on November 05, 2020, 08:49:11 AM
Also, prior to the election, there was a non-trivial amount of fear about protests/riots/violence, particularly if the election was close and disputed.

While we don't seem to have avoided a close election, so far it seems like society as a whole is doing okay sitting and waiting for the final and official outcome. So that's an uncertain risk which is appearing to be less likely than it was perceived to be a week ago.

Edit: But as MDM said, no one really ever knows why the stock market does anything. We can just come up with a set of plausible potential explanations.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: celerystalks on November 05, 2020, 09:57:27 AM
Investors fear Democratic control more than Republican control or gridlock. As the likelihood of Democratic control diminishes, the markets are pricing in a continuation of low corporate taxes, low capital gains and qualified dividend rates.  Further it looks like we will get realistic covid stimulus solutions that will encourage commerce and people entering the labor market instead of keeping businesses closed and paying people to stay out of work until all the germs are gone.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: Much Fishing to Do on November 05, 2020, 12:17:22 PM
One way to always look at it is is it really up or down right now?  as the answer of course always depends on the time period you choose to look at it.  the market has only risen to the same place it was 3 weeks ago, so the lead up from then to now may have just been pictures over potential disasters if there was uncertainty (militias forming if the trumpsters think they were robbed, the cities burning down if the Dems think they were robbed).  The fact we haven't seen anything close to that despite the uncertainty may make everyone feel better.  PLus I think the outcome that looks likely right now (Trump out, Republicans control Senate) may be considered godilocks.  Or maybe we were just pleasantly surprised that last passing asteroid didn't hit us at this point....
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: HeadedWest2029 on November 05, 2020, 01:39:39 PM
I'd wager a decent amount of this week's runup is also tied to stimulus hopes.  It's went up and down a lot lately based on how conversations have gone between Mnuchin / Pelosi, but once the election is over, it *should* get pushed through relatively quickly now that the political stakes have been lowered for politicians after re-election.  Even McConnell indicated stimulus will happen by early 2021 at the latest
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: YttriumNitrate on November 05, 2020, 03:29:35 PM
I thought the stock market didn't like uncertainty?
I doesn't. The outlook for the next two years is much more certain than it was a week ago.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: cchrissyy on November 05, 2020, 03:38:30 PM
suggest a theory why the stock market is going up this week in light of the current uncertain Presidential election outcome? I thought the stock market didn't like uncertainty?

flip yuor perspective around. this election outcome has been uncertain for years and at this moment it is closer to certain than it's ever been.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: fattest_foot on November 05, 2020, 08:34:40 PM
Pretty sure the correct answer was in the 2nd post. The Presidency is less important than Congress.

Since it's looking pretty likely that Congress is split between the two parties, it means legislature grinds to a halt (or rather, stays the same). That's certainty that the market can count on.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: GreenEggs on November 05, 2020, 09:12:06 PM
There's been a lot of money sitting on the sidelines waiting for a sign of hope.  [size=78%] [/size]
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: By the River on November 06, 2020, 07:32:04 AM
There's been a lot of money sitting on the sidelines waiting for a sign of hope.  [size=78%] [/size]

I agree with the thought but was hoping that this was some long-forgotten knowledge or secret to the universe which was why it was written so small. 
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: Retire-Canada on November 06, 2020, 07:57:53 AM
Pretty sure the correct answer was in the 2nd post. The Presidency is less important than Congress.

Since it's looking pretty likely that Congress is split between the two parties, it means legislature grinds to a halt (or rather, stays the same). That's certainty that the market can count on.

Yes MDM nailed it. In particular without control of the Senate Biden can't roll back the Trump tax cut.
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: waltworks on November 06, 2020, 01:14:29 PM
A slightly larger number of the millions of people/companies/algos that constitute the market wanted to buy stocks than sell.

Beyond that, there's no "reason" for anything that happens in the market. It's the blackest of black boxes.

-W
Title: Re: I don't understand the stock market's response to election uncertainty...
Post by: dandarc on November 06, 2020, 01:18:34 PM
Perhaps agent K from Men in Black said it best. "A person is smart. People are dumb, panicky, dangerous animals and you know it."

There's nothing to understand about why the market did whatever it did today or any day.