Leave aside the existential horror of watching the former leading nation of the free world look ever more like it’s LARP-ing its way through the decline and fall of the Roman Republic, and from a market-watcher’s perspective the US elections have been quite entertaining.
I’ve especially enjoyed the narratives used to explain the gyrations in share prices as the drama has unfolded.
As markets fell in October we were told investors were pricing in a Biden victory. Indeed, a ‘blue wave’ was about to seize the levers of power.
“All those juicy tax cuts will be reversed! Regulation will resume! Sell equities!”
Then as the market rose around election day we heard investors foresaw a huge spending spree by Democrat president Biden. Shares rose in anticipation, apparently.
“Mo’ stimulus, mo’ gains!”
But then Trump seemed to do be doing better than expected – and markets kept going up anyway. Oh, that was because supposedly investors love a gridlocked Washington.
“It all leaves politicians unable to do anything to upset the applecart / gravy train!”
But why were tech stocks rallying the most? Um, that was because the US Federal Reserve would have to keep rates lower for longer in an uncertain and undecided America.
“TINA 2.0: There is no alternative!”
At least when you go to a fortune teller you get a cup of tea.
The reality is all this and more was being priced-in, every second. Not to mention the fact global markets had fallen 5-10% in previous weeks and to some extent were probably just retracing their losses as shares changed hands from weaker nervous investors to those happier to take their lumps.
My own pet theory is President Biden is far more likely than Trump was to try to get Covid by the throat in the US and strangle it. In the short-term that could mean a slower recovery and more government borrowing and money printing. All good for technology and growth stocks.
But who knows? The key point is narrative follows price action – at least by the time it reaches the masses. Not the other way around.
Have fun with the pundits if you must (I do) but be wary of taking any of it too seriously.
The market is the consensus of expectations on the future of a stock. Only unexpected events can shift the price. How can you predict the unexpected?
The short answer is: you can’t.
Have a great weekend.
Portfolio tracking: how to track your investments using a money-weighted return – Monevator
From the archive-ator: Using the rule of 300 to estimate how much money you need for financial freedom – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Rishi Sunak to extend furlough scheme to end of March – BBC
Covid help extended for self-employed people, but some miss out – Guardian
Pressure grows to support the excluded self-employed [Search result] – FT
House prices rose 7.3% year-over-year in October, says Halifax – Moneyfacts