The stock market reacted favorably to the increased possibility of a Hillary Clinton presidency on Monday as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index had their best single-day performance since March, after nine straight days of losses.
Equity indexes are not usually this volatile before a presidential election. The last nine-day losing streak occurred in 1980. The dramatic rise in stocks on Monday is a result of FBI director James Comey’s decision to end his second inquiry into Clinton’s emails.
“The market hates uncertainty; it’s tough to fall back on a cliché but it is literally true,” said co-chief investment officer at OakBrook Investments LLC, Peter Jankovskis. “Prior to those revelations, people saw Clinton kind of cruising to a victory and that put it in some doubt.”
The markets find the idea of a Donald Trump presidency risky and reacted accordingly to the FBI’s announcements and the latest polling data. However, markets are not the only prediction tool for the presidential election, but shows a preference between the two candidates. According to Justin Wolfers, an economist at the University of Michigan, one does not mean the other.
“The prediction markets are made up of people betting on political events,” said Wolfers. “The stock market is partly based on the political climate, but also on many other things, like whether a company reported earnings that day.”
The markets’ gains might be short-lived, depending on who becomes the president-elect later tonight. It is expected that even if Clinton wins, the markets will most likely settle back down.
However, if Trump wins, all bets are off come opening bell on Wednesday.
[Wall Street Journal] [MarketWatch] [Reuters] [Los Angeles Times] [Photo courtesy Richard Drew/Associated Press via Politifact]