Stock market hypothesis confirmed
Justin Wolfers and others had argued that a Trump win would produce a sharp drop in stocks. Unless I’m misreading the futures markets, that hypothesis has been confirmed. It looks like stocks may crash 10% if Trump wins. (As I write this post things are up in the air, but S&P futures are down nearly 4% (from the peak), as Trump’s odds have risen from 10% to 45%)
Update: Forget the 10%, it looks more like 5% to me—risks of extrapolation. Interest rates down. I don’t even want to look at the Mexican market.
I’d add that the people who said Hillary was 98% certain to win also look bad. (I mention that because I also look bad, so I’m looking for people who look even worse.)
It also seems like the exit polls were off. That would indicate that the pre-election polls were off for the same reason (sampling error or “ashamed Trump voter syndrome”.)
Interesting that at 9:45 pm the NYT has Hillary winning the popular vote by 2% but losing the election.
I think it’s fair to say the the Clinton/Bush era is finally over. Put a lid on it.
Update: Given that the Senate candidates also seem to be overperforming, it can’t be all due to the “ashamed Trump voter syndrome”—sampling error must have been involved. This is the third straight election where the GOP did far better than expected when an African American was not running for President. I’ll bet the turnout of young voters and African American voters was low—another Brexit similarity.
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8. November 2016 at 18:46
If stocks fall 10% tonight, then I’ll be a buyer tomorrow.
8. November 2016 at 18:57
I wonder if there is a sample error due to the rural/urban divide.
Also, on the theory that monetary offset tends to overshoot on salient factors, this might save us from a recession. Fed funds futures are already trading lower.
8. November 2016 at 18:57
I will say it again, as I said after Election 2000.
Any national election system that results in the popular vote being overturned by a mysterious colonial-era “Electoral College” is deeply flawed and undemocratic.
If a 3rd World nation announced election “results” that Mr. Y won the popular vote, but Mr. X was being installed as President, there would be universal sneers.
The U.S. may be on the way to 3rd World status, but do we have to have shoved in our noses during every Presidential “election”?
8. November 2016 at 19:03
This is a sight to behold.
8. November 2016 at 19:11
Am I seeing things?
“The New York Times has changed its election forecast to give Trump a 58 percent chance of winning the White House”
8. November 2016 at 19:31
NYT says Trump’s odds of winning WH at 82%.
Clinton will win popular vote by between 1% and 2%.
This is another miscarriage for democracy.
How many times will this happen that voters select one president and the system delivers another?
What if foiled voters becomes the norm? (which is possible). Is the presidential election legitimate? Not now, anyways.
8. November 2016 at 19:32
S&P futures down by 4% not 10%.
8. November 2016 at 19:41
‘This is another miscarriage for democracy.’
That’s the genius of the Constitution. It’s by design that political passions are thwarted. The Founding Fathers didn’t want political power to determine what happened in America. That’s why it’s a Republic and not a democracy.
Power corrupts…even democratically elected power.
8. November 2016 at 19:41
Remember, Donald’s promised to start acting Presidential now.
This was not the outcome I wanted or expected, but I can’t stop laughing. The looks on the Democrats’ faces…
At any rate, my congratulations to his many misguided supporters, and I wish him a prosperous term free of constitutional crises and official corruption.
8. November 2016 at 19:44
Nate Silver must be laughing.
8. November 2016 at 19:46
Wisconsin has flipped Trump.
Apparently all the educated Wisconsinites moved away.
Just ragging on Scott. Too soon?
8. November 2016 at 20:02
Patrick —
Nate Silver @NateSilver538 2h2 hours ago
This doesn’t seem like an election in which one candidate had a 99% chance of winning tbh
His drunken rant from the other night is looking a little better tonight.
I feel better and better about this. Trump is already hated by most of Congress and has no real policy goals, he could be the least damaging option.
Just think how terrifying and bewildering this must be to the rest of the world! And I’m laughing again.
8. November 2016 at 20:02
@Benjamin Cole The hyperventilating about the popular vote, the popular vote, is silly to me. We have had the same system since nearly the founding of the country. There has been plenty of time for a constitutional amendment to modify it. The last time was around when Nixon was President I believe. The fact that we haven’t changed it means that there isn’t sufficient support to change it. That’s a democratic result.
If anything, you should be upset that majority rule, rather than democracy, is not being followed.
8. November 2016 at 20:14
In all fairness and even if I don’t like what I see here. The point of democracy is not to get “the people’s will” to prevail. Ever since Condorcet down to the Arrow theorems, it’s clear that one cannot aggregate voter preferences in a meaningful way. Nor is it desirable, which is why most countries are republics, not democracies. Rule of law, not rule of “the people”. The point of democracy is solely that in order to win, candidates must make themselves likeable (enough) for a majority. It’s a market where you must satisfy enough buyers.
So what we see here is that even Trump moved enough to the center and make himself less scary to appeal to a very large amount of people. It’s still a huge and scary mistake IMO but the democratic process has at least done this to him. BTW I believe the one year race is a huge advantage here. It grinds almost anyone down to electability (they have to), this is why almost any race in the US ends 49-51, further evidence for what I said above.
Still, I am feeling sick with this. The one and most major damage that Trump has already inflicted is to shift the Overton window into indecent territory. This will have consequences for the US and as a signal world wide.
8. November 2016 at 20:15
‘I think it’s fair to say the the Clinton/Bush era is finally over. Put a lid on it.’
Too early for that. I’ll bet Hillary is already talking to her legal team about challenging results. Maybe she can retain DeLong to testify on statistical probability.
8. November 2016 at 20:16
John Hall and Patrick Sullivan:
An election “system” that nullifies the popular vote is illegitimate. If that is hyperventilating, then so be it.
If you have read my comments, you would know I am no fan of Clinton. I had mildly positive views on Bush jr. before he got “elected”. I have kept an open-mind on Trump, but his erratic commentary eventually put me into the neutral column.
Th U.S, national election system is demented.
8. November 2016 at 20:33
Shelby Steele was on to it in the WSJ;
http://www.wsj.com/articles/trump-clinton-and-the-culture-of-deference-1478564579
————–quote———–
In a word: deference. Since the 1960s, when America finally became fully accountable for its past, deference toward all groups with any claim to past or present victimization became mandatory. The Great Society and the War on Poverty were some of the first truly deferential policies. Since then deference has become an almost universal marker of simple human decency that asserts one’s innocence of the American past. Deference is, above all else, an apology.
One thing this means is that deference toward victimization has evolved into a means to power. As deference acknowledges America’s indebtedness, it seems to redeem the nation and to validate its exceptional status in the world. This brings real power—the kind of power that puts people into office and that gives a special shine to commercial ventures it attaches to.
Since the ’60s the Democratic Party, and liberalism generally, have thrived on the power of deference. When Hillary Clinton speaks of a “basket of deplorables,“ she follows with a basket of isms and phobias—racism, sexism, homophobia, xenophobia and Islamaphobia. Each ism and phobia is an opportunity for her to show deference toward a victimized group and to cast herself as America’s redeemer. And, by implication, conservatism is bereft of deference. Donald Trump supporters are cast as small grudging people, as haters who blindly love America and long for its exclusionary past. Against this she is the very archetype of American redemption. The term “progressive” is code for redemption from a hate-driven America.
So deference is a power to muscle with. And it works by stigmatization, by threatening to label people as regressive bigots. Mrs. Clinton, Democrats and liberals generally practice combat by stigma. And they have been fairly successful in this so that many conservatives are at least a little embarrassed to “come out” as it were. Conservatism is an insurgent point of view, while liberalism is mainstream. And this is oppressive for conservatives because it puts them in the position of being a bit embarrassed by who they really are and what they really believe.
Deference has been codified in American life as political correctness. And political correctness functions like a despotic regime.
————endquote———-
8. November 2016 at 20:34
‘An election “system” that nullifies the popular vote is illegitimate.’
How can a country’s Constitution be illegitimate?
8. November 2016 at 20:51
Patrick Sullivan:
Legally, I think you are correct. It would take a Constitutional Convention to change the demented Electoral Collage system. I am talking a little bit out of school.
Morally, logically, sensibly, you are incorrect. This is a banana-republic style election system.
Trump will have reduced credibility as he will have lost the popular vote, and everyone will know it. That is an illegitimate system.
8. November 2016 at 21:11
‘This is a banana-republic style election system.’
Nope, just the opposite.
9. November 2016 at 03:57
President Obama is, at best, moderately popular.
http://www.realclearpolitics.com/epolls/other/president_obama_job_approval-1044.html
9. November 2016 at 04:13
the electoral college is stupid and obsolete, but it doesn’t follow that the winning candidate is illegitimate without the popular vote
The rules were known in advance. Both candidates concentrated on the swing states (as is their right under the rules, and, while mildly disappointing to residents of non-swing states, is not a moral dilemma in itself. Is still stupid as a system, though)
There is no telling who’d have won the popular vote if it actually mattered
9. November 2016 at 06:04
sampling error or “ashamed Trump voter syndrome”.)
You spin it the way that helps you feel better. The try-every-door insistence of some in making institutions their bitch (the latest has been the gay lobby mau-mauing the editors of the children’s magazine Highlights) is not a starboard impulse. Ten-posts-a-day on Facebook consisting of dumb memes and John Oliver clips is not a starboard phenomenon. There are differences in the political culture on one side and on the other of the political spectrum. Some people just have to give you a piece of their mind and they are not evenly distributed.
And, of course, the ‘shy tory’ effect is manifest in Britain as well, just not consistently manifest. Donald Trump’s never been on the ballot there.
9. November 2016 at 06:14
An election “system” that nullifies the popular vote is illegitimate. If that is hyperventilating, then so be it.
There are variations in the boundary conditions for being included in the electorate from one state to another and variations in the manner in which elections are administered. The presidency is the only race in which you have a cross state electorate, so you need a tabulation convention unless you’re going to have federal administration of elections (which presents other problems).
There are features of the electoral college you could make salutary changes to: eliminating the office of elector and the state capitol ritual a month after the election, assigning each state a quantum of electoral votes equal to the citizen population living therein (something that would allow the small insular territories to participate in presidential elections), and divvying up large states into constituencies and distributing electoral votes accordingly (cutting up California into 4 or 5 consituencies, Texas into 5 or 6 constituencies, Florida into 4, Ohio into 3; and Pennsylvania, Illinois, Michigan, New York, North Carolina, New Jersey, and Virginia into 2).
9. November 2016 at 06:18
This is a banana-republic style election system.
The system’s been in place since 1804. The political institutions of Banana republics do not have that sort of durability.
Neither candidate won a majority of the popular balloting and the provisional count puts only a 140,000 margin between them. How much of that consists of illegal aliens voting, Gov. McAuliffe’s mass amnesty of felons, college students voting twice, ACORN run absentee ballot fraud?
9. November 2016 at 06:20
It would take a Constitutional Convention to change the demented Electoral Collage system.
No, an ordinary amendment would do. You could not get a supermajority in favor of unmediated popular balloting because there’s a suasive enough argument against that.
9. November 2016 at 06:47
Wow. Stocks completely recovered the overnight losses and the yield curve has steepened.
9. November 2016 at 06:48
Art Deco:
“Mau-mauing”?
Which Leisure World are you
posting from?
Elroy “Crazy Legs” Hirsch is on the phone…rotary dial that is
9. November 2016 at 07:33
Nate Silver gave him a 1 in 3 chance with a fairly high MOE. So while I too am surprised, the absolute shock expressed by the media is more a reflection of their own internal value system that could not ever imagine voting for him. That really does show a true value separation between the so called elites (shorthand word, but understood in common usage) and at least half the country. There is something meaningful about that but I am unable to put my finger on it. I also understand why it is reasonable to fear his worst comments. Who doesn’t? But he also has his best comments which really are pretty good. We cannot predict the future of course. But I find it interesting that his acceptance speech literally reversed the markets back to zero. We will know in a few years what kind of President he will be. And while Reagan was not vulgar and also had a clear well expressed vision, while Trump does not yet, there is still a parallel. Reagan was famously called an amiable dunce, was viewed as an maniacle anti communist and a naive character who actually believed in right andwrong. He was despised in real time and people were “afraid”.I liked your post the other day which implied politics is not everything nor even close to everything. The personal is not the political.Any guy who expresses love for his family, dead and alive, hopefully can be a rational competent leader. We will know years from now.
9. November 2016 at 07:35
“Wow. Stocks completely recovered the overnight losses and the yield curve has steepened.”
And so a surprise result leads to a market open functionally even? And up over the past 3 days? Jumping the gun doesn’t seem to cover this post.
9. November 2016 at 07:46
Mike, Yes, Nate Silver actually looks pretty good, as many other pundits said it was almost certainly going to Hillary.
Everyone, I have a new post on the election at Econlog.
9. November 2016 at 08:13
Stock Market Hypothesis Debunked?
Futures are subject to an easy bear raid. The actual stock market opened higher and has basically held it all morning.
Time for another edit?
And when will you go back to doing interesting posts on monetary economics? I always enjoyed those a lot more than the political drivel. I can get that from Fox or CNN anytime I want.
9. November 2016 at 12:08
Yes, I think it’s hard to argue the index futures markets were rational last night, unless Trump’s victory speech made the difference.
10. November 2016 at 05:54
Scott,
Actually, the talk on Bloomberg radio today was that Trump’s victory speech may indeed have sparked optimism on Wall Street, because he brought up infrastructure. I don’t buy it, but interesting. I suspect we’re going to see something akin to a New Deal-type vanity project from Trump, which I’m sure his fellow Republicans in Congress can’t wait to receive.
10. November 2016 at 09:58
Andrew, You said:
“And when will you go back to doing interesting posts on monetary economics?”
The problem is that something needs to happen for me to comment on. I can’t just keep saying the same thing over and over again. Another Great inflation or deep recession would give me fodder.
I always recommend to people that they not waste time reading my political posts.
Scott, Vanity project? That would be The Wall.