Justin Wolfers argues that Wall Street fears Trump

Wall Street fears a Trump presidency. Stocks may lose 10 to 12 percent of their value if he wins the November election, and there may be a broader economic downturn.

These conclusions arise from close analysis of financial markets during Monday’s presidential debate…

Monday’s presidential debate provided a rough approximation of this experiment. At 9 p.m., before the debate began, the betting markets gave Mr. Trump a 35 percent chance of becoming president. Two hours later, after the debate, we had entered the parallel universe in which economic conditions were the same, but Mr. Trump’s chances had fallen a tad below 30 percent.

During the debate, the overnight futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, and because it was driven by the reduced chance of a Trump presidency, it reveals that the market believes that stocks would be worth more if he were to lose the election.

Here is the NYT article.  I noticed exactly this pattern myself, but I wish Justin would consider why this correlation does not hold more broadly in the data across other time periods.  Trump rose from a joke candidate to as high as 36 in the prediction market, without much denting the stock market.  Are we supposed to think improved prosperity drove both developments?

Here are some good remarks from Scott Sumner.


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