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, “any time you take an element of uncertainty off the table, volatility comes down and the market tends to look higher”. 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 shouldn’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 don’t have to blame the election. You could instead blame the fiscal cliff: Alan Greenspan says he’s “concerned that the election per se has really not changed” the likelihood that policy makers will be able to avoid sending the economy back into recession. Or we can blame Europe.
Alternatively, there’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. He’s unlikely to repeat that feat.
In reality, of course, searching around for spurious causality is always a bit silly. Here’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 yesterday’s gains — 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 there’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 today’s links: