Presidential debates do not change the course of history. They have not ever been a major market mover either.
The Big Q: Could this debate between President Trump and Democratic challenger Joe Biden be different?
That is the question some investors may be thinking about now just before Tuesday’s 1st Presidential debate.
Yes, the US equity market moved mostly lower in September as the race for the Oval Office heated up.
Expectations for Joe Biden to hold his own as a debater are low, so the debate outcome could set the tone going forward in the Presidential race.
Monday, the DJIA was looking at a 3.4% monthly decliner in September, the S&P 500 index was on pace for a 4.4% monthly decliner, while the NAS declined 5.3% so far for the month.
- NAS Comp +23.6% YTD
- S&P 500 +3.2% YTD
- DJIA -3.8% YTD
- Russell 2000 -9.8% YTD
On average, going back to Y 1960, when televised debates started to become more of a happening in American politics, the S&P 500 index has fallen in the next day and posted lower returns in the 5-Day, 10-Day and 1-Month frames. Those are decliners of 0.3%, 0.9%, 1.8% and 2%, respectively.
Dow Jones Market Data notes that the data are skewed lower due to the Y 2008 financial crisis, when markets began the 1st stages of a violent fall, due in part to the souring in mortgage securities that spread across the globe.
Data from DJIA on the stock market’s performance after the 1st Presidential debates between the final front-runners show that a 0.14% decline on average on the day after the debate, a 1.51% decline from the 1st debate to the next, a 2.51% decline between the 1st debate and the final Presidential face-off and a 0.35% fall from the 1st debate to Election Day.
The median results skew higher, with the median average reflecting a 0.9% gain from the first debate to Election Day, the Dow Jones data show.
And there is the fact that there were not any Presidential debates from Ys 1964 to 1972, as President Lyndon Banes Johnson refused to debate Republican Presidential candidate Barry Goldwater in 1964 helping to usher in a frame of no debates.
What my work shows is that market participants have been signaling who they think will win the Y 2020 election and they do not foresee major surprises. As most people likely know who they are going to vote for at this point.
But, a strong or weak showing by either candidate could potentially sway some on fence voters.
Some market strategist do not put a lot of significance in the debates as influential for markets and points to Y 2016 as an example of lackluster moves.
Investors view President Trump as favorable to Wall Street, while many expect that Mr. Biden will increase corporate taxes and tighten regulations, which some argue will weigh on stocks in the short run.
A solid showing for either Presidential candidate in the debate could cause some reformulation of betting odds and polls, which in turn could alter the outlook for certain policies.
Again, financial markets care more about policies than politics and President Trump’s policies are working.
Have a healthy day, Keep the Faith!
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