Well, wasn’t that special?[i]
I have to confess I went to bed early on election night. Between the pandemic and this election, I have a serious case of fatigue going on. But this morning, before dawn, I got what some might consider good news. While results were still unclear, it appeared likely that we would end up with a divided government.
The markets didn’t like it; they loved it. Especially “Big Tech.” While the broader market (e.g., the S&P 500) fluctuated from positive to negative before rallying to close up over 2%, the tech-heavy NASDAQ index soared in the futures market and stayed strong all day, closing up almost 4%. 4% in one day![ii]
Last week was the worst for equities since March, but we now have three amazing days in a row going into the election[iii]. Somebody somewhere obviously changed their mind about something over the weekend, but who knows?
What we do know is that old-fashioned polling is dead. Seriously, who answers their “home phone” and spends half an hour with a pollster? After two elections forecast so badly, both the pollsters and the media who rely on them will need a rethink.
So what does this mean?
First of all, markets like stability and clarity. Some say markets like certainty, but that is ridiculous, we never ever have certainty. Tomorrow is guaranteed to no one. But historically divided government, where the two parties control different parts of the executive and legislative branches, usually means that change is difficult, and status quo, more or less, is the likely outcome. Markets seem to like that. They know the rules, and the rules don’t change too much.
To be clear, this is an observation of reality, not an opinion about how things “ought to be.” As we plan for our financial futures, we need to focus on how things are, not how they ought to be, not on how we would like them to be. We can’t control all of that.
What now? How does this end up?
This ends up in court; that has already started. This may take some time to be resolved– we just don’t know. And seriously, more important than this particular set of outcomes this year is the integrity of the process. A lot of people are very concerned about that. The most important thing is the rule of law, regular elections conducted fairly and transparently, never allowing power to accrue to any person, group, or party beyond the limits established by our Constitution.
We can survive many things, as long as we retain the ability to change out the people in government on a regular basis. It might be very messy, and it might be clear to you that it is not going the way you would like it to go every time, but as long as we don’t lose the ability to freely express our opinions and vote as we see fit, we will be OK.
At times like this, I take some comfort from the words of Winston Churchill (November 11, 1947):
Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.…’
Be of good cheer!
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[i] Apologies to Dana Carvey, aka the Church Lady (Saturday Night Live).
[ii] Source: Morningstar Direct. Data as of 11/5/20.
[iii] Thursday morning update – markets sharply higher again, across the globe. A lot of people seem to like this outcome, despite the continuing uncertainty.