Throughout my life, Wall Street has been a red state.
It didn’t matter that stocks rose more under Democrats, or that economic growth was better under Democrats. Wall Street bought on the hope that Republicans would win, and sold on the fear that some Democrat might.
In the month before the 1992 election, for instance, Wall Street felt ill at ease. Poppy Bush had been a safe pair of hands. Who was this Bill Clinton fellow, and what was up with his wife?
Yet today, on expectations that the same wife — Hillary Clinton — might become the 45th president, stocks are expected to rise. The S&P 500 Index is tracking to open well more than 1%.
For most of the present campaign, stock prices have remained stable, moving in relation to earnings. There has been growing divergence between the Nasdaq and the other averages as tech earnings have looked strong, and as technology takes over more of the market.
But just in the last two weeks, since Oct. 22, all the averages have moved down, with tech taking the biggest hit. The Nasdaq is down 5% in that time. As Donald Trump surged in the polls, the move down has accelerated.
Tech Losers May Win With Clinton
The biggest, most successful tech companies are taking some of the biggest hits. Amazon.com, Inc. (NASDAQ:AMZN) is down 10%. Facebook Inc (NASDAQ:FB) is down 6%. This is not because their earnings were poor. They were very good. But people were selling, taking profits and sticking them … where?
Most overseas markets seemed to be holding up well until the last week, when they started rolling over one-by-one. Suddenly, on the morning of Nov. 7, they’re all snapping back, sharply, with moves of over 1% in Germany, Britain and Japan.
The S&P 500 and the other major U.S. averages will almost certainly break their losing streak today, and the financial media is unanimous in their explanation why.
To the market, Hillary Clinton represents stability, and Donald Trump a leap into the unknown. Citi predicts a quick 5% fall in the averages on a Trump win, and much of that came in last week.
This is not the way it’s supposed to be, but that’s the way people are trading it. They’re afraid of the Republican, comforted by the Democrat — precisely the opposite of how they have reacted to elections for decades now.
This doesn’t mean that stock traders are turning in their business suits for overalls and becoming Bernie Bros. I suspect if Democrats were about to take over Congress (they’re not expected to), the market reaction to tomorrow’s election might be more muted.
Tech stocks were leading the way forward in premarket trade. Amazon was up nearly 2%, Facebook nearly 1.5%. Normal order is being restored as polls show less political change is likely than was feared last week.
Markets Like Stability
What markets like in politics more than anything else, more than even capital gain tax cuts, is stability. They want predictability. They don’t want anything that smacks of revolution. Revolutions wind up breaking things. Especially in the wake of the earlier Brexit vote, markets are looking for any sign that the barbarians of ultra-nationalism can be repelled from the gates.
The British market may be up since Brexit, but the pound has tanked from $1.50 down to $1.25, so buying British stocks hasn’t been a good move no matter what the FTSE average has done, unless you’re an Englishman and stuck with pounds. But step across the water, and you’ll see just how cold that comfort is.
Assuming things go as promised, investors will turn in early on Tuesday, and Wednesday will be another up day. We’ll return to the levels at the middle of last month, on the promise of stability. Hillary Clinton may still be the devil on Wall Street, but she is the devil we know.
If we wake up to President Trump, sell, sell, sell.
Dana Blankenhorn is a financial journalist and author of the science fiction story Into the Cloud. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN and FB, and voted Democrat.
