Counterparties: The hunt for spurious causality
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Yesterday Americans were choosing a president and the S&P 500 was up 0.8%. As one trader put it, â€śany time you take an element of uncertainty off the table, volatility comes down and the market tends to look higherâ€ť. We have now chosen Barack Obama to be president and the S&P is down 2.4%.
Is Wall Street reacting sourly to the possibility of four more years of hurt feelings, increased regulation, and (shudder) Elizabeth Warren sitting on the Senate Banking Committee? The outcome really shouldnâ€™t have been any surprise: an Obama re-election has been clear to numerate observers for quite a while.
If you want to cast around for reasons why stocks fell today, you donâ€™t have to blame the election. You could instead blame the fiscal cliff: Alan Greenspan says heâ€™s â€śconcerned that the election per se has really not changedâ€ť the likelihood that policy makers will be able to avoid sending the economy back into recession. Or we can blame Europe.
Alternatively, thereâ€™s always the old standby of profit-taking. The S&P is up more than 11% in the past year, and up 65% since Obama took office. Heâ€™s unlikely to repeat that feat.
In reality, of course, searching around for spurious causality is always a bit silly. Hereâ€™s Cardiff Garcia and Joseph Cotterill at FT Alphaville:
Yesterday we saw a few commentators note that the market was rallying because of the increasing certainty that Obama would be re-elected and the leadership of the two branches of Congress would remain the same. Today, with that certainty firmly established, the markets have wiped out all of yesterdayâ€™s gains â€” and the argument is the precise opposite: the certainty that Barack Obama is president and the House remains Republican mean further gridlock.
The fact is that no one has a clue why markets are down, or even whether thereâ€™s any reason at all. What we do know, however, is that Obama is in good company: markets tanked after both FDR and Truman were elected. — Ben Walsh
On to todayâ€™s links: