November 3 has come and gone, and while the results may not yet be fully etched in stone, we have a pretty good feel for where things are headed. I suspect there are two camps of you who read the Dividend Cafe, and I do not refer to partisan leanings. What I mean is that I imagine many are excited to not hear about the election any longer, and then there are many who want to wrap their arms around everything as fully as possible (as far as what it all means to the economy and markets, etc.). I want to do a bit of both, personally. I want to accommodate that latter group today, providing as much useful analysis of where we go from here as possible, and then I look forward to having a lot less to say about the political implications of, well, most things.
The fact of the matter is that the political dynamic (a) Always affects markets to some degree, not just in a week like this one; and (b) Always has much, much less of an impact than people believe it does. Policies matter. And there are impacts in both macro and micro parts of the economy and investment markets that stem from policy decisions. But many investors have been utterly confounded over the years (including this week) by markets seeming to respond differently than they expected in response to some political outcome.
Investors who find themselves surprised by a market reaction to a particular political outcome that is different than they expected it to be can be forgiven since truth be told, market reactions confounding people’s expectations is the normal state of affairs. Much of it has to do with the ability of markets to have already priced in a certain outcome before it happens, meaning what seems to be a market response to something is really the market now adjusting to something else – that the market was ahead of the news headline.
Links mentioned in this episode: