Looking at the reaction of the financial markets to the US election over the past two days, the action has been anything but a ringing endorsement of Tuesday’s results. It would seem, however, that the markets are reacting more to Congressional elections than the Presidential election, the results of which were no big surprise.
I am going to float the notion that the markets were looking for some sort of government gridlock. In other words, the markets have it right to some degree in that what needs to be done right now is nothing. At least not on the part of government. Government has already done more than enough. Having some gridlock might have prevented more damage from being done. This should not be taken as some sort of indictment against the controlling party. There is plenty of blame to fully cover everyone. Both sides of the aisle were the problem, now we’re supposed to believe that both sides of the aisle will be the solution. I think not.
Apparently the markets agree with me. The DOW has lost nearly 900 points since Tuesday, and the S&P 500 abandoned its rally at the 1000 level and is now back down near 900. What little euphoria existed last week has been abandoned as focus returns to our deteriorating economic fundamentals.
Our weekly commentary, due out tomorrow will focus on various economic indicators, their uncanny ability to call prior recessions, and their ‘failure’ to do so currently. I contend this ‘failure’ is the responsibility of methodological and statistical shenanigans as opposed to a flaw in the indicators themselves.