Tuesday, November 1, 2016

How the US Presidential race is roiling markets

As odds of a Clinton victory fall,
or the increased likelihood that Clinton will not be able to govern, even if she does win, has caused the VIX, which measures volatility/uncertainty about the US stock returns (invented by colleague Bob Whaley) to rise.  The expected yearly movement (standard deviation) in the S&P is up to 17%.  

Hat tip:  FT


  1. The presidential election had a large impact on the Stock Market, not only before the election had even taken place, but also immediately following the results. Even before the official announcement of Donald Trump’s victory, the Dow, S&P 500 and NASDAQ had dropped an average of 4.6 %, 5%, and 5%, respectively. “Dow futures had sunk 833 points, or 4.6 percent, in pre-market trading as of 9:38 p.m. Pacific time Tuesday, as unexpectedly strong Republican showings in battleground states gave the GOP contender a real shot at winning the White House. The S&P 500 suffered a 5 percent drop, down more than 100 points, while NASDAQ slipped more than 5 percent, to 4558.” (Collins, 2016). After the 2008 election, with President Obama’s first win, the market declined 5.27 percent, marking this the work stock market fall to date.

    The presidential election has historically caused an immediate effect on the stock market, but it has eventually bounced back to a long-run equilibrium. “Stock markets initially hated news of a Donald Trump presidency, but by the end of trading Wednesday, they recovered nicely: it marked the fifth-best S&P 500 session for the day after a U.S. presidential election in measured history. The index rose 1.10 percent from the prior close, coming just a hair away from tying for fourth, when the S&P increased 1.12 percent the day following the 2004 election.” (Maglio, 2016)

    As Luke mentioned above, the expected yearly movement (standard deviation) in the S&P is up to 17%, however this is with a Democratic President. “The market seems to do better when the Democrats have the White House.” (Pfau, 2016). The Average Annual Return for a Democratic President is 15.08% and the Standard Deviation is 17.32%, based on 48 years of a Democratic President. Whereas, Average Annual Return for a Republican President is 7.88% and the Standard Deviation is 22.38%, based on 42 years of a Republican President. Based on the results from this election, with a Republican President, a Republican Majority in the Senate, and a Republican Majority in the House, it is expected that the market will decline, but only time will tell.

    Collins, S. (2016, November 8). Stock Market Futures, Mexican Peso Plunge on Fears of Donald Trump Win. Retrieved from The Wrap: http://www.thewrap.com/stock-market-futures-mexican-peso-plunge-on-fears-of-a-trump-win/
    Maglio, T. (2016, November 9). How Stock Market Has Reacted Day After Presidential Elections – Including Today (Chart). Retrieved from The Wrap: http://www.thewrap.com/stock-market-presidential-election-donald-trump-obama/
    Pfau, W. (2016, April 21). How Do Presidential Elections Affect The Markets? Retrieved from Retirement Researcher: https://retirementresearcher.com/presidential-elections-affect-markets/

  2. Froed,
    The presidential elections and the market volatility is a topic of great debate. While the statistics shown reflect that the economy have the tendency to further growth under a democratic presidency, one must question is it an expenditure patter across democratic elections or the potential economic growth and balance that democratic candidates reflect in their campaigns. It remains unknown the true factor why markets have the tendency to grow during a democratic election. One factor could be that democratic have a more balance budget under their sleeve, while the republican candidates focus more in other areas of global expending.
    Since the election, the stock market appears to be gaining momentum, perhaps this is due to the upcoming meeting of the federal reserve and the potential hike in interest rates or maybe this is due to deals that president-elect Donald Trump have sealed with private companies to bring jobs back to America. Whatever the rationale is, it remains unclear the metrics by which the stock market reacts during a democratic or republican presidential election, yet it is important to note that market trends in many occasions can be predictive based on historical data, perhaps many of us are optimistic that this election and our new president-elect may be the variant to change that pattern moving forward….we will see what transpire in the next four years.