Trump and the stock market: what was the debate about?

The two people (Wolfers and Ozimek) who did the empirical work did a great job, but much of the rest of the exchange from other commentators has missed the point.

If you approach the debate as an emotional referendum on how good or bad Trump (Clinton) would be, you’re probably going to get it wrong.  You will view yesterday’s exchange as being about choosing the Wolfers estimation or the Ozimek one, the latter showing that increases in Trump’s odds didn’t seem to hurt the stock market up through a particular date.  If then you sided with Wolfers, you could keep a very negative view of what Trump would be like, or if you sided with Adam’s investigation you could still wonder to a greater extent.

The better way to think about the exchange is that Adam (and I) raised a puzzle.  Given that economists as a whole don’t like Trump (look at endorsements), why haven’t the regular fluctuations in his odds had more of an impact on the stock market?

Now comes the Justin Wolfers study, showing the stock market went up a lot as Hillary Clinton was winning the debate.  That makes the puzzle bigger not smaller.  It adds to the preexisting prior about what correlations we should find in those earlier data points.  Why for instance didn’t Trump’s fairly rapid pneumonia-inspired, pre-debate rise from 30 to 36 spook the markets in a big way?  Why didn’t Trump’s longer-term rise from near zero to 36 bring a lot of market turmoil?  And since a strong economy should help the incumbent Party, the puzzle is all the stronger; you can’t expect a strong economy to boost both the stock market and Trump’s odds as a confounding third factor.  And note of course that Justin himself, in other contexts including on Twitter, will assign weight to the churning movements in the prediction markets, even if he doesn’t consider them any kind of decisive test.

A few of the options on the table are to say gridlock is stronger than we had thought, prediction markets less reliable, other candidates less reliable, or that Trump cutting taxes on capital relative to HRC will for the stock market outweigh some of the costs of his presidency.  I’m not pushing any one of those, I am suggesting that at least one from this and a broader list ought to be true.

Many many of you have responded to such conundrums with answers starting with but not ending with the concept of noise and low-powered tests.  That is a perfectly fine set of responses but then you must apply the resulting beliefs consistently to all other spheres.  You could say for instance: “So much noise comes along in our economy.  I do prefer Clinton to Trump, but because of all this noise I’m really not so sure Clinton will work out better for the economy.  All of the other intervening economic events is what the prediction market and stock market data were picking up and that is why Adam’s test was imperfect.  My judgments are imperfect too.”

That is an entirely permissible answer, if you really believe it and embrace it.  The error is to segment your belief space.  If you say “Wolfers beats Ozimek because Ozimek doesn’t consider noise enough, therefore I stick with my belief that Trump is really bad for the economy,” well that kind of mistake belongs in a Jonathan Haidt novel.  I find few people are willing to embrace the more consistent statistical preference plus agnosticism, rather they play the game of “statistical noise for thee but not for me.”

Plenty of statistical tests have low power, including, believe it or not, the ones you run with your political intuitions.

Most generally, don’t look to throw out information, or see one study as trumping another, rather seek to use and interpret all of the information available.

By the way, one possible answer that fully reconciles the data of both Wolfers and Ozimek is to suggest stock markets started seeing Trump as “incurably terrible” only during the debate itself.  That is hardly a confirmed hypothesis (we’ll see going forward), but it is another way of recognizing why Wolfers and Ozimek have not produced competing hypotheses, rather two pieces of information for revising a broader Bayesian mosaic.


Tyler - I'll clarify the comment I made on the last post since you're still not getting it. Inferring causation from correlations is *hard*. You don't seem to appreciate how hard.

The fundamental problem is that we don't understand either politics or the stock market well enough to be able to explain most of the variation in either. Most of the variation in both is driven by factors we don't understand. I think you would acknowledge that. And if so, how can you be confident those unexplained factors are not correlated in ways you haven't conceived? There are hundreds of possible stories we could tell about omitted variables. Ruling out one ("prosperity couldn't possibly drive both!") gets us nowhere.

There is no puzzle here. There are lots of correlations that have hundreds of possible explanations. The only way around this econometric problem is to look for shocks or other valid instruments. The debate is a clear shock although it's probably underpowered to draw firm conclusions. The other examples you gave (like pneumonia) occurred over several days when any causal relationship could easily be swamped by innumerable other factors that were changing.

And of course, I and other advocates of econometric rigor would admit that we have to consistently apply these standards and that we try to do so! Can we also conclude that Trump would likely be bad for the economy? Of course we can - with the qualification that predicting the future is hard. We have both theory and plenty of reasonably well-identified studies explaining why his trade policies and his budgetary policies would be disastrous. Would he execute these terrible policies? Maybe. It's hard to know (and even hard for the market to know). But we do have evidence that what politicians say they will do is a good guide to what they will do ( This together suggests Trump will be bad in expectation. ALL judgments about the future are tentative. We just have to do our best with the evidence and models we have. This is as true of Trump as with global warming. In both cases, the fact that predicting the future is hard is no reason not to urgently speak out in favor of what the best evidence suggests.

The only thing I can clearly make out from all this is that you support Hilary...

"Can we also conclude that Trump would likely be bad for the economy? Of course we can – with the qualification that predicting the future is hard." -- Jason, you are exactly the kind of segmenter I am warning against.

Tyler, I think I understand the issue - you believe that I (and others) are saying that the only time we are allowed to believe anything about the future is when we have evidence supported by a credible econometric strategy. That is not the case. What we are saying is that you should NOT make inferences based on poorly understood time series correlations. What is left? Virtually every other way that humans commonly reason - our intuitive models of the world and predictions based on those models. We should of course assign high weight to what has been demonstrated using a credible empirical strategy. So, the following are totally consistent to believe:

1) Numerous reasonably well-identified studies suggest that Trump's stated trade and budgetary policies would be bad if implemented (and there is a reasonable chance they will be). I suspect that a poll of top trade, public finance and macroeconomists would show almost universal agreement on this. This doesn't prove it's right, but what the experts believe is a better guide to truth than most other signposts.

2)The fact that Trump's only economic advisor with a PhD makes incoherent claims filled with elementary errors and that Trump shows in any case no inclination to look for dissenting opinions suggests his response to economic events would likely be ill-informed

3) If the time series evidence shows a positive correlation between Nicholas Cage movies and swimming pool deaths (as it apparently does), we are not obliged to infer this is probably causal. If the time series evidence shows a lack of correlation between regulation and the value of the stock market we shouldn't infer that regulation doesn't matter. Time series correlations alone are not reliable! That is the claim and there is no segmentation or inconsistency required to believe it.

4) If someone does a more careful study showing how shocks to X impacts the stock market, we should probably update our belief about X will impact the total value of firms (given the usual caveats about how this relates to social welfare more broadly).

You are simply misunderstanding the call for rigor. The call is not for the (crazy) belief that we be agnostic about everything not demonstrated by a paper using rigorous econometrics. The call is for skepticism about specific kinds of evidence that we know are unreliable.

Let me clarify further what I meant by "predicting the future is hard." If you asked me, "What's the probability the stock market will decline under a Trump Presidency or what is the probability GDP growth will be lower than trend?" I will readily acknowledge that these are highly uncertain! I think a Trump presidency would with reasonably high probability be worse than the counterfactual - but that doesn't mean I'm willing to take a strong stance on what the realized level will be. This is why I can consistently say a) there is a lot of noise but b) multiple lines of evidence suggest that - in expected value - a Trump presidency would probably be bad for the economy relative to the alternative. Of course, if you showed me a *well-identified* study suggesting that the market believes the contrary, I would update my claims about b) (although I am more skeptical than Justin that the level of the stock market is a good sufficient statistic for welfare).

TC gets it my fiend. He's a chess master, seeing far more than you or I. It's like an unclear position in chess: it may look like a mess but TC sees the board better than amateurs.

These two studies--which strangely popped up about the time TC posted, I wonder if one spurred the other--were a bit ambiguous but not unsound. I myself did not read the reports closely but the reason the debate was used as a 'threshold' in the Wolfers report was that the economy is the same just before Trump spoke at the debate and just after he finished, hence, any change in the futures market is presumably not the result of anything other than the debate. Sound logic, though I would not, as the author(s) did, project the tiny negative impact of Trump out to ten years. That said, my gut tells me Trump will be a lousy president for economics. Good for foreign policy perhaps (being crazy is actually a plus not a minus), but not for the economy.

How would it make any sense for the stock markets to start seeing Trump as terrible only during the debate itself?

For an informed political observer, the debates added basically no new information, except in their effect on the polls. Neither Clinton nor Trump said anything different from the messages they've been sending the whole campaign.

That may reconcile the data between Wolfers and Ozimek, but that raises even more questions - like, what other dreadfully obvious information are the markets missing? Maybe at the next debate they'll price in the fact that bears shit in the woods?

As a long-time investor and political junkie, I can't believe the market moves very much on such tiny fluctuations in political fortunes. I've seen it move for some silly reasons, like the color tie Greenspan wore to a congressional hearing, but the effect of rumors is generally temporary. And as every prospectus for the last half-century or so has warned, "Past performance is no guarantor of future results."

But with so many researchers, finding a unique topic is hard enough without having to find a relevant one as well. Far easier to just pick one and impute relevance to the results.

So, Bloomberg columnists don't care much about basketball any longer, but they certainly seem to love horse races during election season.

Hillary would probably like to raise capital gains taxes on the kind of people who own a lot of shares. Obviously she can't wave an Empress wand and make it happen. Congress probably wouldn't go along with it. However if she does somehow manage to make that happen, lots of these shareholders probably would realize their gains before the higher tax rate goes into effect. If they recycle the proceeds right away the net effect might be zero, but if they keep the proceeds on the sidelines for a spell in hopes that they get a better deal with entry at some later point, this could trigger a cascading downward cycle.

If Trump on the other hand is able to work with a cooperative Congress (more likely than Hillary getting GOP House and Senate to acquiesce) to reform corporate taxes, this could prompt a massive repatriation of accumulated overseas profits that would fuel a nice boom of investment and share repurchasing.

There are no capital gains taxes on people who own lots of shares.

Capital gains taxes apply only to those selling shares for higher nominal prices.

You can argue that taxing changes in nominal prices when inflation has merely increased the price of capital assets that might be worth less than when originally built or purchased. Before the 80s, indexing assets for inflation might have been pretty hard, but today a good approximation would be easy. Use the national gdp deflator or even labor cost index plus 1% times years held up to five to increase the asset price basis and then compute capital gain. The 0-5% factor would be for the gap between the end of the index table and the date the asset sold.

For many assets held for long terms, there would be no gain, and losses could be used to offset capital gains. To reward holding assets for long time periods, just increase the basis by gdp deflator plus 1% per year asset has been held, and use that to compute a capital gain if any, but not to compute a capital loss.

After all, isn't capitalism's merits based on building productive assets that provide productive gains for 5, 10, 50, 100 years, or more?

Look at a chart of EWU, the UK ETF. There's a two-week move due to Brexit. Everyday there are various events and each is weighted; political events are more like earnings reports, they get weighted heavily right at the end, only if there's great odds of a surprise and the outcome is meaningful. The number meaningful events can probably be counted on one hand in the past couple of decades.

The prediction markets are saying Trump won't win with odds at 30% or 35%, both are equal to zero in an options market. If Trump rises above a threshold (I guess above 40%) then the markets might take notice because the prediction market at that point would be saying the race is a toss up.

You have to eliminate all other factors or show a really strong signal. The move occurred when Asian markets opened. Correlation between assets is very high. Buying of stocks in Japan might spark some buying in the S&P 500 futures. Looking at a 24hr chart, the market rallies during the debate, but eyeballing it, it is clearly not a distinct move, there were larger moves before and after.

There is reality and there is the perception of reality. Are you playing the news or the players who already anticipate the news? Traders avoid Fed days not because they don't know what the Fed will do, but because they don't know how the market will react. Sometimes the initial move following the announcement continues on. Sometimes it is reversed within hours, days or weeks.

Even events as big as 9/11 don't have lasting impact on the market. Trying to show a short-term correlation to 9/11 is easy to do, but a bear market was underway and if I took the dates off the chart and you didn't know market history, you might fail at picking out 9/11 because it isn't even the biggest drop of that bear market. The market drop in July 2002 was bigger.

Of course noise plays a roll but so to does time. The closer we get to the election the more weight markets will assign to events that can impact the election. The debate is a bigger deal than the conventions and any October Surprise is a bigger deal still. I think the discount on election predictions is quite high so it maters quite a lot not just how prediction markets move but when.

And it also seems quite likely that the economic impact regarding who becomes president may be quite small. The status quo for either candidate is gridlock.

Imagine a Trump presidency where the GOP retains control of the House & the Senate. The House will get busy churning out legislation that advances Speaker Ryan's agenda. But lacking 60 votes in the other chamber, virtually none of that legislation reaches President Trump's desk to sign.

Much of the damage a president Trump could do wouldn't be to the economy. So I ask again, why should the S&P care about who becomes president?

Perhaps the risk of Trump doesn't get priced in until he gets above 40%.

Berween 0-35%, the market ignores Trump, sort of how the market is ignoring Greece for now or was ignoring Deutsche Bank until a few days ago.

Once the risk gets closer to 50/50, the market starts to notice and volatility kicks in. Note that even if Trump hurts the market it really wasn't that much.

This. There are probabilities but people taking decisions is more simple: there IS a problem, there is NOT a problem.

Nonetheless, I think Cowens point is still right.

If Trump was truly that bad, his potential negative effect would have gotten priced in much earlier.

Anytime fed odds to raise rates go up the market feels it, even of it was just 30% for a September hike.

Trump would by more like Brexit, in my opinion. The market would initially freak out then quickly recover.

Sorry for the typ

Come to think of it, why doesn't someone look at poll data and market reactions to Brexit?

Very similar cases

TC, rather than clumsily attempting to circumcise mosquitos, may I suggest a re-read of a modern classic:

This entire question presupposes that Trump will be a bad president relative to Hillary. The framing of it is skewed from the get-go.

Maybe, just maybe Tyler, the market doesn't think he'll be bad. It might even think he'll be good. *gasp*

Entrepreneurs, businessmen, people who actually *make things* understand on a deep level how value in an economy is created, and how sclerotic and debased the modern pre-Trump 'conservative movement' has become. They served as the loyal controlled opposition to leftists, weakly trying to refute their points but like a boxer who's paid off to take a fall, eventually acquiescing to their demands after a little pressure. Mainstream Republicans are more afraid of being called racists by people who don't even like them than they are of the long-term consequences of not standing up for conservative principles.

America used to be a place where big ideas were pursued with fervor, and if the government wasn't working properly it would be shaken up. Continuous structural reform was the order of the day, almost like a software company with agile workflows, and many of our greatest achievements came from this sort of practical creative destruction of state and federal institutions. Ever since the Civil Rights revolution, America has been more concerned with identity politics and 'gibs me dat' zero-sum wealth redistribution than with efficiency and innovation. Basically, Peter Thiel is right on the money as far as I see it.

Ok, Trump shock up Atlantic City. Is Atlantic City today Great!? Was Atlantic City post Trump-shakeup EVER Great! Again!??

In general, where have workers ever ended up better off after Trump made something Great! Again!??

After all, during the typical American life, being a worker is the way 90% earn the money they spend buying most gdp.

If no one can afford to buy gdp, gdp will not grow.

If Trump actually were a great businessman, he'd have no problem getting past partners and other business leaders to attest to his brilliance. But his past partners are more likely to be in a lawsuit with him than to endorse him. Imagine the endorsements that would roll in for Warren Buffet or Elon Musk.

Trump could simultaneously be worse for the economy but better for S&P 500 equity holders. If his policies on trade, for example, help large incumbent companies against foreign competition, then these companies' equity may perform well in spite of the overall economic harm. Or, more fundamentally, to own equity can be thought of as owning a call option on a company's assets (struck at the company's level of debt). All else equal, more volatility increases option valuations.

That has certainly been true for Obama.

Apophenia, which smokes out your underlying opinions.

Much ado about nothing. What is omitted in the back and forth among these three is that Trump's supporters don't believe what Trump says, and the stronger the support, the more they don't believe him; why would someone be worried about what a president Trump might do if what he might do is unknowable since one doesn't believe what Trump says he will do - he's no more going to build a wall than he is going to go on a diet. On the other hand, if investors are concerned about "uncertainty", as the experts kept telling us during the Obama administration, then they should be very worried about a president Trump, uncertainty being Trump's own best selling point as a candidate. But when it comes to Trump, Cowen seems to be saying that "uncertainty" is bunk.

Religious zealots only challenge results that contradict their pre-conceived faith-based beliefs. They refuse to apply the same statistical challenges when the results agree with their pre-conceived faith-based beliefs.

For example: stock returns by presidency has a sample size of something like N = 10. One side of the religious fight will ignore this, the other will point this out. Assigning who will make which observations depends on who your prophets are (Saint Reagan or Bill Jeff).

I agree with this post. Noise and unpredictability.

Think about George W, Bush. When elected, seemingly a reasonable guy, a Harvard MBA, probably a do-nothing president to cut taxes on the rich a little bit and go golfing.

Instead the US got into two fantastically expensive and counterproductive yet evidently eternal wars of occupation, saw enormous runaway increases in the federal "natural security" budgets, and had a collapse of the financial system. Bush even nominated Harriet Miers to the Supreme Court.

Yes, the S&P 500 got cut in half and so did commercial property values on Bush's watch.

So Trump looks bad? Maybe he does. Clinton does too.

On the other hand, the S&P 500 quadrupled under Bill Clinton.

Making predictions is hard, especially about the future.

I guess you forgot about the collapse in the S&P just before and after Bush became president.

That's about as simplistic of an analysis you can get. Bush took over during a Clinton recession, and the 2007 recession was built over things happening over the past 20 years.

"Given that economists as a whole don’t like Trump (look at endorsements), why haven’t the regular fluctuations in his odds had more of an impact on the stock market?"

What do economists beliefs have to do with the stock market?

And, maybe market participants don't really believe Trump will win (I trade every day and I don't), so why should "fluctuations in his odds" have any influence?

I like the Taleb and Shiller tilted answers above.

No one liked my culture answer yesterday but to say it a different way, standard formulas for portfolio allocation, risk assessment, options pricing, have no input for "candidate" (let alone "Trump").

It is asking too much for agents in markets to abandon culture and practices.

Again, a different way, professional traders have millions of lines of written code. To abandon that, because it does not have a "Trump" variable, would be to go full seat of the pants.

Who is going to do that?

I think you are right. Do short term traders even know the reasons behind the trades they make?

Maybe the market moved during the debate because a lot of technical signals went off due to the price action. The algorithms themselves may not have even been watching the debate.

"Do short term traders even know the reasons behind the trades they make?"

Yes, their expectations about what other short term traders are going to do. Market dynamics...not fundamentals, economists' commentary or political probabilities.

My limited experience with shorter term trading models suggests that short term trades are primarily based on price and volume movements, and setups in a particular security - generally without regard for underlying fundamental value.

During the time I was testing such a system I regularly was seeing tickers that I didn't even know what business they were in, and the books and blogs I was reading indicate these type of systems are regularly built without fundamental input.

Ok 3rd .. as an indictment of this whole EMH/Trump thing, I will coyly ask:

Surely the election outcome is predicted by VaR?

OK, if you believe the stock market is a disembodied indicator of future economic performance, then you're right: you've got a great puzzle. On the other hand, if you believe the stock market is a collectivization of animal spirits, then the puzzle looks a whole lot easier to understand. Remember Hanson's empty but economically rich future? How would the stock market react to news that the economy next year will be exponentially fantastic--but DEVOID OF HUMANS?

Trump isn't the bad candidate, he's the uncertainty candidate. So how did the VIX move during these events?

How come nobody is mentioning the massive spending on the military Trump says he will do? That's bound to move a few stocks up.

It's possible overall military would drop during a Trump presidency due to improved military relations with Russia and China.

I have an old dog. Last week he was sick. After monday he has picked up, good appetite and doing quite well for a 12 year old.

Must be because Hillary won the debate. Or so we were told.

Or maybe it was the 5% lead in one from Los Angeles for Trump?

I'm confused.

Or not really. Isn't there a name for people who stare at the patterns of tea leaves in an attempt to figure out the future?

i'm not an economist, but could there be some type of balancing happening? to the extent trump looks more volatile and bad for the market, he also looks less likely to be elected?

I'm confused by the point you're making. As in just about any context, it's entirely possible that one of the studies was just designed better than the other to identify the quantity of interest. That is - these are totally different designs and the reasonable social scientist could favor either. It's probably true that some priors about politics (rather than the designs per se) influence that choice, but even if this was about something totally apolitical, plenty of people would want to throw out one or the other ("Only the Wolfers study uses a plausibly exogenous shock!" or "You can't conduct inference from what amounts to a single data point!")

Markets price in not just what happens if this candidate wins, but also what might happen later. A Clinton victory does not make the forces that brought Trump this far vanish.

There are three simple explanations reconciling (a) Trump's rises in the polls are uncorrelated with the stock market and (b) the stock market went up after the first Clinton-Trump debate. Take your pick.

1. Polls provide information that is worthless or old, and a Trump victory would hurt stock values.
The polls changed, after all, so the earlier ones were misleading. Probably the present ones are misleading too. A careful analyst should trust his own judgement about the presidential race, not polls, particular in a peculiar year and when Trump didn't do much advertising in August or September.

2. Polls provide information that is worthless or old, and Trump's debate performance soothed fears that a Trump victory would hurt stock values.
All news is relative. If you read the liberal media and thought Trump was just like Hitler, watching the debate would give you very good news about Trump. Even if you didn't think he won the debate, you'd raise your expected value of corporate stock.

3. Polls provide information that is worthless or old, and Trump's debate performance increased his chances of victory and a Trump victory would be good for the stock market.
Most people think Trump lost the debate. Suppose he did (I thought it was even except for Clinton's home run on the tax return topic, but that would give Clinton the victory). It is quite possible to be viewed as a worse debater but to get more people to vote for you anyway. Trump was trying not to say anything interesting or to criticize his opponent too much, not to win the debate, so the audience would think he was a nice guy. Sort of like Ben Carson. Maybe the stock market thinks he succeeded.
Another version of the same: I think both Trump and Clinton came off badly. If the decline in Trump's reputation was less than the decline in Clinton's reputation, this could increase Trump's chances of victory.


Maybe EMH is weaker than we thought.

Market aren't as rational as assumed

Including biases etc. stoves most of it

Similar case was pre Brexit lack of market crash to reflect 50-50 polls a week before.

Markets also have a publish with second order effects residually wren they fixture wildly continuously. This seems to be the reason

One more time:

“One of the collective fallacies our culture operates under is the delusion that the market is some kind of astute forecasting machine. It is not — it represents the collective wisdom of 10 million panicked monkeys. That millions of slightly clever, pants wearing primates can combine their collective ignorance, their intellectual foibles, biases and false beliefs somehow into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.)”

I guess you are getting to this at the end, but I really don't see any reason to believe that the stock market is that much smarter than the voting public. If Trump is doing better in the polls, that also means he's being perceived as less dangerous. This is going to hopelessly confuse evaluating poll movements against stock market fluctuations.

I love it when bloggers say they are misunderstood. Then try harder to make it understandable. I'm still not certain if the stock market - Trump election correlation is supposed to be a proxy variable for: (1) Trump's chances of being elected, (2) Wall Street's estimate of what a Trump presidency will mean for the stock market, (3) Wall Street's estimate of what a Trump presidency will mean for the economy, (4) a measure of uncertainty (a) of the possibility of Trump's election or (b) of Trump's effect on anything, (5) Wall Street traders' game theory of how other traders will react to perceived Trump possibility of election, (6) spurious correlation or (7) any or all of the above. Since (2) and (3) are crap and every rational trader knows it, my guess is that (5) is where the action is.

There are the people who take Trump seriously, and there are the people who don't take seriously Trump or those who support him. There are more of the latter than the former, and while something like the pneumonia issue may excite the former and produce a little bump in the polls, the latter don't see it as fundamentally changing anything because they know there are still more of them, and as long as that feels like it's the case they can continue to believe that their world remains unthreatened.

So the useful inquiry isn't to look for correlations, but rather to identify the thresholds that will trigger the step function reactions, i.e. the "oh shit!" moments, that cause people to change their behavior. It took actual Brexit to produce the anti Brexit oh shit moment.

From the trading floor, it looks to me like "the markets" (actively-trading portfolio holders: investment banks, money managers, hedge funds, even asset managers) trade mostly on reactions, not on model updates. It does not seem to be the case that people have a model of the economy, the stock market, or any particular company that involves a certain number of parameters, where they 1) adjust a parameter, 2) turn the crank and 3) get a new fair value to trade by. It seems to be that people think 1) the price is X now, 2) this event will move the price by Y% ish, 3) let's trade to the new price. The crucial thing is that, for all their virtues, the market has a fairly small scope for paying attention. The debate is roughly when the markets (markets at large -- FX markets were ahead on this) started to price the election odds, so new information on Probability(Trump) moved the markets. But more importantly, it has become a consensus view that everyone in the market is going to start Trump-pricing the S&P, making it a necessity to react to changes in Probability(Trump). The fact of common knowledge is important.

Look, for example, at what happened before Brexit. All of 2016, option markets priced a few % volatility for the FTSE100 on election day, but nothing drastic. There was a sudden and major repricing of election risk a couple months before -- not on the back of particular news, but because someone set off major trading, everyone realised the market was going to position itself more radically, and then scrambled to get in position before everyone else beat you to it. Implied % volatility shot up and stayed high for the remainder of the pre-election period, but became a great deal more responsive to new polling results (and e.g. spot spiked when Jo Cox was murdered). The markets' all-seeing eye actually has quite a limited focal area.

Remember what Keynes said about short term stock market fluctuations, which he likened to trying to pick the winner of a newspaper beauty contest Those who picked the most popular faces would be eligible for a prize.: "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees."

So, the market has an idea of the short run reaction to the election, which depends on the probability of each candidate's success. The debate was very quickly judged by most people as helpful to Hilary, increasing the probability of her election.

If he were (a) really feared (Because he is a bad guy and could do a lot of damage) and (b) viewed as having a good chance to win, I believe there would have been a much bigger market move.

So, either the market viewed his chances for success as low to start with, so the debate confirmed their priors, but didn't move the needle much. Or they don't believe people will view Trump's election as a huge for the market after the election. I think some of both.

It’s definitely going to make whole market affect, so that’s why we need to be extremely careful and wise with things. I don’t know what will the outcome of election, but we should never prepare if we are uncertain, so that’s why we got to be extremely sure about things and only then we will be able to gain. I keep it simple and straight forward with OctaFX broker which is superb having swap free account that helps me with working and perform well.

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