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Rational markets

Friday, September 30, 2016 20:24
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(Before It's News)

Justin Wolfers speculates, based on stock price movements as Clinton's chances improved during Monday night's debate, that a Trump victory would lower stock prices by 10 to 12 percent, even though he has promised enormous corporate tax cuts that (all else equal) would raise stock prices even if they didn't help the economy as a whole.  Insofar as investors are positively pricing in his tax cut promises, this must mean “they believe that the rest of his economic program will do enough harm to more than offset the benefits [to companies] of lower taxes.”

Wolfers adds that the adverse stock price reaction “might reflect concerns about Mr. Trump's unconventional approach to the Federal Reserve, worries about a possible trade war, fiscal irresponsibility, apprehension about national security, or simply the cost of greater uncertainty.”

Wolfers' historical research, with fellow economists Erik Snowberg and Eric Zitzewitz, going back to 1880 (!), finds that “no [other] candidate moved the market by more than a couple of percentage points.”  But of course we already knew that we were in historically unique territory here.

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