Markets don’t react to that slowly to news. I was watching the overnight trading session in SPUs (S&P 500 futures) as it became clear Obama won. They fluctuated between down 65 bps and up 45 bps all night until about 3 am when I finally went to sleep. Contrast that with 2004. Consider that in 2004, when the false exit poll news that Kerry was winning key states came out, the market immediately sold off sharply. To traders, news that is one minute old is already ancient. The market response is so quick that news shows up in SPU trading about 15-20 minutes before either television news or the internet announce it. Thus, I’m inclined to say that the sell off on the two days following the election had more to do with overly exuberant responses to various news items over the preceding week than to Obama’s victory.

That doesn’t mean that some part of the market decline before the election was not attributable to an expectation of an Obama presidency and a democrat congress. It just means that those two particular sell offs are most probably not.

Possibilities are: 1) market went down because of Obama, 2) Obama’s election had little or no effect on market and 3) market would have gone down more if McCain had won.

Maybe the sell off of the past two days was all noise. I would have felt better if the market had rallied instead.

The near promise of higher capital gains tax rates next year certainly will have an effect. The problem is that the market has taken such a beating this year, it’s difficult to find any gains to take.

What I “love” is the headlines on election day that claimed the rally was because the election led to “change”. Of course, Asia and Europe were up those days too (which is why our market rallied) and that was attributed to the upcoming crowning of the Obamessiah. Um….no. The Asian markets sold off sharply for a while when it became clear that Obama won because they understood that the consumer of last resort would produce and therefore be able to consume less with a socialist president and socialist congress.

The next two days’ headlines, when the market tanked two days in a row, was that the market turned its attention from the fabulous news of electing Obama to the weak economy. Yeah, because in the middle of the trading day, all of us traders totally forgot that there’s anything else going on in the world except the good news that we’re electing a president and congress that will fast track us to Euro-socialism. Obviously, it’s time to buy stocks then because buying high and selling low is a winning strategy! Oh, the media….

The market is forward looking and Obama was widely expected to win. His win was priced in. However, there’s so much data coming from all over the world, that it’s difficult to isolate the Obama effect.

If he doesn’t do that we can fairly safely conclude that he is indeed a dogmatic socialst – and the market will continue to slide…

Bound to have some negative impace.

If my friends who think he is a plain-vanilla centrist technocrat are right, I hope we will have a rally in the market to celebrate this happy fact.

At this point all we can do is wait and watch.

-I don’t know the extent to which an Obama victory was priced into the market, or how much the recent market weakness reflects his election. These aren’t easily testable questions, and Obama isn’t the only influence on market behavior. However, Obama’s election wasn’t certain until he was elected, and I think it’s possible that the market weakness of the past couple of days is the result of the market’s discounting the last ten percent of probability that he would be elected (i.e., from ~90% to certainty). Also, broadly, the market has been going down late Spring, when Obama was nominated. Correlation doesn’t prove causation, but my guess is that in this case there is a relationship.

How much of the big downturn was precisely that?