Election Surprises and Stock Markets


Last week (What Would Spook Markets?), I focused on recent research conducted by economists Eric Zitzewitz and Justin Wolfers, which concluded that a Trump victory would “reduce the value of the S&P 500, the UK, and Asian stock markets by 10-15 percent...and would significantly increase expected future stock market volatility.” There may be some proof to this thesis: As Trump’s numbers have improved, stocks have responded in kind by dropping: the S&P 500 has dropped for nine consecutive sessions, for a total of a 3.1 percent slide. The numbers still favor Clinton, but this has been a strange year, so it is worth looking back to other presidential shockers. 68 years ago, Republican Thomas Dewey was thought to be the favorite and according to analysts at Capital Economics, “the polls caused the stock market to rally in the weeks leading up to the election. However, the shock re-election of incumbent President Harry Truman caused the S&P 500 to fall by more than 10 percent over the next two weeks.”

Finally, given Trump’s vow to fight the results, if the race is close, it is instructive to consider how a contested election result might play out for investors. In 2000, when the country had to wait for the Supreme Court to weigh in on a recount, there was a clear negative market reaction: stocks dropped by almost 5 percent during the week after the election and remained volatile during the 36-day period after polling day.

October Jobs Report:The labor market recovery continued in October, as the economy created 161,000 jobs and the unemployment rate edged down to 4.9 percent, mostly in line with expectations. Beyond the headlines, there were three positive data points in the report: the August and September results were revised higher, bringing the average monthly gain for 2016 to 181,000 jobs; average hourly earnings rose, pushing up the annual increase by 2.8 percent, the fastest monthly growth since June 2009 and an especially impressive number, considering that inflation is running at about 2 percent; and the broader measure of unemployment, which includes those who have stopped looking for jobs and those working part-time for economic reasons fell to 9.5 percent, the lowest level since April 2008. (Note: Although a lot of Americans are working part time, almost all of the 11 million jobs added since the recession officially ended in mid-2009 have been full-time positions.)

At the Federal Reserve policy meeting last week, the central bankers noted that “the case for an increase in the federal funds rate has continued to strengthen, but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.” Consider the October jobs report as further evidence that will help bolster the Fed’s case for a quarter-point interest rate increase at the December 13-14 meeting. Traders are betting on it…according to the futures markets, there’s a 75 percent chance of that outcome.


  • DJIA: 17,188 down 1.5% on week, up 2.7% YTD
  • S&P 500: 2085, down 1.9% on week, up 2% YTD (9 consecutive losing sessions, longest losing streak since Dec 1980)
  • NASDAQ: 5046, down 2.8% on week, up 0.8% YTD
  • Russell 2000: 1163, down 2% on week, up 2.4% YTD
  • 10-Year Treasury yield: 1.77% (from 1.85% week ago)
  • British Pound/USD: 1.2518 (from 1.2186 week ago)
  • December Crude: $44.17, down 9.5% on week
  • December Gold: $1,306.90, up 2.2% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.22 (from $2.22 wk ago, $2.21 a year ago)


Mon 11/7:

3:00 Consumer Credit

Tues 11/8: Election Day

CVS, News Corp

6:00 NFIB small-business optimism index

10:00 Job Openings and Labor Market Turnover (JOLTS)

Weds 11/9:

Viacom, Wendy’s

Thursday 11/10:

Kohl’s, Macy’s, Walt Disney

Friday 11/11: Veterans Day: Bond Markets and Banks CLOSED, Stock markets OPEN

10:00 Consumer Sentiment