Wednesday, November 5, 2008

Obama’s Win and the Effect on the Stock Market

A Barack Obama presidency is now confirmed. So, what effect will this have on the stock market? Whatever happens to stocks, we can expect the press to link it to Obama’s victory.

One theory is that Democrats are bad for business, and stocks will drop in value. Another theory is that Republicans are responsible for driving the US debt to dizzying heights, and the stock market should respond positively to a Democrat as President.

Or maybe the market was anticipating an Obama win, and investors will “sell on the news” driving stocks down even though they think Obama will be good for the economy. Or maybe the opposite will happen because of some sort of double-reverse psychology.

I don’t know what will happen to stock prices for the rest of this week, but whatever happens, it will be portrayed as the inevitable effect of Obama’s victory. Surely some stock price movements will come as a result of random buying and selling that has nothing to do with the election.

Short term price movements are mostly unpredictable, and the important thing is what happens in the long term. We can only hope that Democrats will govern in a way that leads to the economic growth that is necessary to have long-term gains in the stock market.

2 comments:

  1. I would guess that Obama would turn out to be much better than GWB but then again, Paul Martin was widely expected to be a great Prime Minister.

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  2. CC: It's hard to see how Obama could possibly live up to the current expectations. I'm just hoping that he turns out to be an above average president.

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