Daily Market Update – November 5, 2014 (9:00 AM)
The election results are in and the futures are heading higher despite the reasonable certainty that this would have been the election outcome, as power shifted from one party to another.
Presumably the optimism is because the feeling is that Republican dominance is better for the economy, although history rejects that hypothesis. Besides, the economy is such a slow and lumbering entity, that no one really notices when it turns some kind of corner. It usually happens a couple of years before anyone has noticed or a couple of years after some particular measures have been taken. It may only be coincidental that those turns may be associated with a change in the political landscape that happen with great regularity.
More often than not it’s just a question of being at the right place and at the right time, just as its opposite is true.
On the other hand, maybe the optimism is tied to the belief that the split in power will lead to more adult-like behavior and the passage of more laws rather than the gridlock of the past 15 years.
On paper that should be true, but most elected officials are already plotting what they or their party need to do for 2016 and cooperation with the opposing party isn’t going to make them look any better or their opponents any worse, so it’s not clear why there would be optimism. After all, job one, isn’t getting the job that you were elected to do, done. It’s getting yourself re-elected.
In a few days we will have likely forgotten about these election results other than for what will likely be some significant chest pounding and comments about how things are now going to be different.
So with lots of time to debate the merits of the election outcome, that just brings us to what’s in store for the rest of the week. It’s a question of jobs and whether the European Central Bank will follow the Federal Reserve and now the Bank of Japan and inject money into the economy.
That means there are any number of catalysts for this week after the election and probably not too many surprises in store. It wouldn’t at all, for example, be unusual to see the largest employment gains come after a rebuke of the existing party in power. If not this week, give it a month or two.
Going back 6 years the first increases in employment after more than a year of declines started after the 2008 election, but no one gave credit retroactively and those in power were more than willing to take credit. Again, the beauty of the stealth movements of the economy. Temporal proximity is a powerful convincer of association that may not really exist.
That’s not a uniquely Republican nor a Democrat characteristic. It’s just the way it is and we simply believe the associations as they are presented to us. That may be the answer to why, in a 2013 poll in Louisiana, a majority of the respondents blamed President Obama for the Federal government’s response to Hurricane Katrina. Are you really going to place blame on someone who is ancient history or the one who is right there and already taking blame for lots of other things?
So for the next few months there will be lots of jockeying and probably very little getting done, but then that’s no different from the past few years and the markets simply went higher and higher.
I have no problem with that, at all, as long as it begins today.