Can Stocks, Bonds, Metals, Currencies All Be Wrong About Trump? Yes
History suggests the initial reaction by investors after a U.S. election isn’t always the right one
How could so many asset classes be wrong?
Actually, quite easily. The danger is that investors are responding to their own prejudices, then receiving reinforcement from one another. While the market is internally consistent, that isn’t enough if it has misjudged the big picture—as it often does on the economy, and even more so on presidents.
.. Take the 2013 taper tantrum, or a period in 2010 when markets bet big on a rapid postrecession recovery—only for panic to set in when the economy proved weak.
.. But history suggests markets aren’t that good at judging presidents. And that presidents just aren’t that important to stock prices. The worst performance of U.S. stocks between Election Day and Inauguration Day came ahead of Franklin Roosevelt, Richard Nixon and Barack Obama’s first terms and Lyndon Johnson’s 1964 election, according to calculations by Birinyi Associates. Yet after FDR and Mr. Obama took office, the market boomed, while it did perfectly well under Nixon and LBJ.
The market wildly misjudged the potential of Herbert Hoover. His election-to-inauguration stock price jump hasn’t been bettered, but the 1929 crash was on his watch and no president since has overseen such poor returns.