/Markets Followed Expected Pattern Through Election Shifts

Markets Followed Expected Pattern Through Election Shifts

The markets can be unpredictable but during the election, they shifted accordingly. As the election shifted to near-certainty to Biden then to Trump prices shifted as predicted.

The election count highlighted the problem markets have been giving investors since Dutch East India company stock was the only game in town: They move in the right direction, but move much too far. In the jargon, markets have momentum, and it befuddles investors. In times where information is scarce, momentum takes over—a problem visible not just since the election but in the markets for much of this year.

Markets moved after the election in exactly the direction they should. As the polls closed, there was a Biden surge, at least in the minds of traders, who had been too trusting of the pollsters. The 10-year Treasury yield jumped to 0.94%, the highest since the panic in March. S&P 500 futures jumped, and Nasdaq futures didn’t. The bet was that a Democrat sweep of the White House and Congress would deliver more spending and more borrowing, pushing up Treasury yields and helping old-line industrial and consumer stocks, while creating an alternative to technology stocks for those seeking growth.

As it became clear that Florida had stuck with Mr. Trump and the Democrat “blue wave” was merely a ripple, traders reversed course. Treasury yields fell sharply, while Nasdaq futures soared 4.8%. There would be no fiscal splurge, so no help for traditional economically-sensitive stocks, while tech remained the only growth option, with the benefit of no hostile Congress.

Markets then swung once again, with Treasury yields falling to 0.77% and stock futures giving up all their gains as a long wait for a result came into prospect. Donald Trump’s premature claim of victory added to the downward pressure, encouraging worries about a disputed result (the Bush v Gore Supreme Court fight in 2000 was accompanied by falling stocks, bond yields and the dollar).

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