Election Outcomes and Market Response

The Trump surge continues…his odds as of 11/3/2016 are 35% on 538, a gain of 20% in little over a week. And he’s taken small polling leads in Ohio, North Carolina, and Florida whereas last week Hillary was ahead in those states.

The general consensus seems to be if Trump wins, the market will fall..the question is how much and for how long. As I discussed yesterday, should the market fall, it will be short lived.

There are one of three outcomes for November 8/9th:

1. Trump wins a decisive victory: the S&P 500 immediately falls 5-6%, which is slightly worse than the reaction to Brexit.

2. Hillary wins a decisive victory: the S&P 500 will rise to where it was before Hillary’s polls began to plunge, which is about 3% higher. Hillary’s odds were 87% (versus only 65% now) on October 25th, and the S&P 500 was 3% higher then than it is now.

3. The outcome of one or more key states is too close to call and the election goes into recount. During the last debate, Trump vowed to not concede readily, and given how close many of the key states are, a recount is a definite possibility. A recount would effectively be the equivalent of a ‘second election’ where the odds of Hillary winning are set at 50% and the results are determined not by voters but by the recount processes over the ensuing months or so. contested election would cause a 3% or so immediate drop in the S&P 500, with additional selling or buying based on how the recount unfolds.

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