Friday, November 07, 2008

Market reaction to Barack Obama

On 3rd November, the S&P 500 closed at 965. Now it's at 912.

On 3rd November, the VIX closed at 55. I would have normally expected that the outcome of the US presidential election should yield a reduction in uncertainty. But the VIX is now at 64.

A coincidence? I am reminded of the article in the Financial Times by John Tamny and Rob Arnott, that I had blogged about on 4th November, which pointed out that the market is pretty uncomfortable with an Obama presidency which might shape up as a left-of-centre administration.

The market is doing well, as always, in being a canary in the coal mine. The 5% decline in the S&P 500, and the 9 point rise in the VIX, would exert pressure on Obama's staffing decisions. We're perhaps more likely to get well respected names such as Larry Summers in economic policy roles as a consequence. I am reminded of 17 May 2004, where the stock market registered a massive vote of no confidence in the UPA. I feel this helped increase the quality of Sonia Gandhi's decisions on putting together her cabinet.

2 comments:

  1. Surely, you meant Manmohan Singh's cabinet :-)

    ReplyDelete
  2. "The market is doing well, as always, in being a canary in the coal mine."

    Are you kidding? This is pure fanaticism after what we've just been through, a step down from the economist's pose as a scientist to sheer illusory thinking. Quite sad that even the best minds are subject to this...

    ReplyDelete

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