Whoever wrote this is a moron. markets don't process just the event, but the probability of the event. The dow has been rallying all week on the possibility of a dem takeover. I am skeptical of whether this is actually happening, but its a theory.

My guess is some people are taking profits following those 5 year highs. If those traders are just realizing that the Dems could/are taking over Congress, I want to know their names so I will never, ever let them invest my money.

This discussion seems to come up around each election. Last I remember, the consensus was that markets dislike uncertainty and, right now, it's unclear what's going to be happening in the near future. Is there any reason to think this is from specifically Democrat-related concerns, rather than general uncertainty?

Dan, I don't think you can blame this all on the Democrats getting control of the House. I'm more likely to see this as the indecision over the MT and VA races, which can be drawn out into a nasty mess. (And Allen is just the sort of pig-headed insufferable idiot who would like to do so if he continues to be on the losing side.)

Markets are discounting mechanisms. The house was certainly priced in to the market. Equity markets are 5year highs. The uncertainty in the senate might be part of the reason for moves that amount to noise .5% !!!

For a "free-market" academic you show only a foggy notion of how markets work, or else you are simply a party hack trying to trash a democratic house before it even takes power. I was sure after your gaff over Iraq you would stop blindly carrying water for the gop.

MARKETS DOWN .5%...DEMS TO BLAME!!! What a laugh!

Unfortunately, Pat Buchanan is correct (as much as I hate to admit it).
http://www.realclearpolitics.com/articles/2006/11/return_of_economic_nationalism.html

This is the reason why the market responded the way it did, more than the typical unease at Democratic economic policies.

This post reminds me of that so-called "business" show on Faux News by Cavuto, the one in which market movements are psuedo-correlated with whatever political issues Cavuto wants to rant about that night.

When I watch Cavuto, which isn't that often, I know I'm not watching business news. And I know I'm not witnessing economics thinking.

I guess I'll have to take a similar approach to this site.

simple buy the rumor, sell the fact.

Dan, I don't know how often you read the business press, but here's a good rule of thumb: Ignore attributions of cause to daily market movements. There are exceptions, of course -- a truly unexpected Fed interest rate move, or the 9/11 terrorist attacks, but typically, the "reasons" for markets moving that are a ubiquitous feature of business news are just made up.

This is especially the case when (a) the market movements are of ordinary size, and/or (b) the event which is being attributed as the cause was widely predicted in advance. (a) is true for today's market movements, and (b) is certainly true for the Democratic House victory. The House takeover was priced in to the market already. You could try to argue that as-yet-undetermined Senate was not priced in, but I can't see that alone as having a big impact, especially as a Senate takeover by the Democrats had been widely reported as possible, if not probable.

S&P down -0.05%, hmmm doesn't even seem to be selling off much on fack

Dan,

I'm not buying your argument at all. And I'm surprised you are making it. You believe in the efficacy of markets, right? We have pretty efficient political markets right now that are instantaneous and online (see Tradesports site). We know what the markets thought about a democratic victor prior to the elections. Unless you think there is a huge market failure (or that stock market investors are much dumber and myopic than gamblers in these markets), then you have no good reason to think that the market dip today is related to the democratic victory.

And, to pile on with some of the comments above, I actually heard some idiot on the radio yesterday say that the reason the markets closed so high on Tuesday was the surprisingly strong showing of the democrats. Again, total nonsense. You don't attribute causal force to an EXPECTED outcome when you see a one day blip up or down after that EXPECTED outcome is observed. And, by the way, it was expected. Unlike 1994, the polls did a very good job predicting what would happen last night.

It's nice to see that the comments section is so full of good sense. Even if you didn't know that anticipation of a Democratic win in the House had been coincident with a rally in stocks (which anyone who presumes to write on such issues should know), you'd want some metric for establishing how big a significant move would be. Other than Mexico and Japan, each of which have their own news, I don't see any major national market that has moved more than 1% today. Given that 1% moves are pretty common, and that there is earnings news today that might also have an impact, and that some stocks (FNMA) are up while others (Pfizer) are down, and that whole sectors (petroleum) are up for reasons that may or may not have anything to do with the elections, how small a move were you going to allow as a market reaction to the election?

The Pelosi effect? This is truly sad - but not quite as bad as all that Kudlow flip-flopping that we've documented over at Angrybear. Dan - I hated to associate you with Kudlow (my update) but me thinks you deserved it on this one.

"... fears that a Democrat victory..."

Speaking of discounting, anytime I see that construct (not "...fears of a Democratic victory...") I discount whatever the writer/speaker has to say as his bias is showing.

How soon we forget. What happened to the NYSE the day afer Bush first won election in 2000? The comments here are right--why are you even bothering with this drivel? While there's probably some reason to be concerned about pharmaceutical stocks, given an expectation that the Medicare gravy train ride of the past two years is about to go away, the rest of this is horse exhaust.

Note -- that if you had bought 3 month t bills in January 2001 when Bush took office you portfolio would be up 15.4% at the end of last month as compared to 11.2% for the S&P 500 with daily dividend reinvestment.

Don't you know that since WW II the average total return from stocks has been about 50% higher under democratic presidents then under republican presidents -- 15% vs 10%.

Remember the long term growth rate of US real gdp is 3.5% and in 5, going on 6 years Bush has only had one year of above trend growth.

I don't get this. Didn't the Dow go up today? Even if you wanted to ascribe random fluctuations of the market to some cause (which as noted above is pretty dumb, really), isn't this backwards?

Does anyone care to address Dan's more substantive article on the fact that movement on trade issues is basically toast?

I don't believe in the whole "aw, the Dems are in and the economy is going to be crap" thing, but I gotta say, if I were a stock owner in oil or pharma, I'd be a little bit nervous.

BTW, does anyone else think that the comments section at Political Animal is for crap?

The commens here pretty well cover it. Just thought I'd pile on. The Democratic victory was no surprise, hence should not have had a big effect on the market.

Alex R. is correct about the business press also. The vast majority of "explanations" for market moves are simply post hoc rationalizations. They have to fill up the space somehow.

The commens here pretty well cover it. Just thought I'd pile on. The Democratic victory was no surprise, hence should not have had a big effect on the market.

Alex R. is correct about the business press also. The vast majority of "explanations" for market moves are simply post hoc rationalizations. They have to fill up the space somehow.

Since WW II real gdp growth has averaed 4.0% under democrats and 2.8% under Republicans -- it use to be 3% But Bush has brought down the average.

Do you have any evidence to support your belief that Democrats are bad for the economy/market and republicans are good.

The only President in modern times to increase tariffs or othewise restrict free trade is George Bush. The only president to have his trade talks complete fail is george bush with the Daha Rounds.

Again, do you have a single fact to support your contention that democrats are anti-free trade and the republicans are pro-free trade.

Dan, are you SURE you know anything about economics? Because this sort of stuff is, frankly, undignified of anyone who's passed Stock Markets 101.

Drum has more than "a decent case." He's absolutely right.

Everyone here is focusing on the idea that the markets "knew" the Dems would likely be winners. But no one's talking about the substance of the thing-- what will the Democrats actually do, or try to do? Let's face it, there will be no windfall tax. It would take 60 votes to get that through the Senate over a filibuster, and they aren't there. Even if they could get it through the Senate, it would take 2/3 majorities in both houses to override the inevitable veto. Further, both Pelosi and Reid have been very conciliatory in their public statements so far. They are both quite aware that their new majorities are small, fragile, and due largely to centrist/conservative Democrats. They not only need to actually govern from the center, but they very much need to avoid any appearance of radical leftism if they want these majorities to last through the next election cycle or two. Thus Pelosi's "no revenge" comments.

Maybe I have a major disillusioning coming, but I am actually quite optimistic at the moment.

Out of curiosity, does anyone know (or know where to find out) what the markets did in the immediate aftermath of the big Republican wins in 1994?

Ever since I turned down the chance of buying Microsoft at $13 -- yeah, sure, we'll all have "computers" in our homes! -- I've watched the market with no small amount of cynicism. The markets were jumpy every time Alan Greenspan farted, so "political analysis" predicated on a dip, bump, correction, or other change that will inevitably be part of the error term strikes me as the worst kind of "Economist" inspired bullshit.

Bob Garfield at "On The media" pretty well debunked this Wall Street reporting a couple of year ago in his NPR show. Maybe it's still archived.

Here's the transcript of the NPR, On The Media story I was talking about:

http://www.onthemedia.org/transcripts/transcripts_091203_wallstreet.html