We've had a few situations this year when we knew that the market was going to trade a certain way depending on what a particular asset class was doing. For example, earlier in the year, equity market direction was dictated by oil prices. Every time oil traded lower, stocks moved lower, because we were dealing with a potential energy related debt default cycle. Then when oil would rally, stocks would go up with it in relief.
As time went on and the oil market stabilized and economic news started to come out better than what most economists expected, markets then shifted their focus to interest rates. That's when the "good news is bad news" trade directed markets and stocks would sell off in anticipation of the Fed raising rates. In both these scenarios, we could at least be pretty sure of what the market direction would be, given what the underlying driver did.
Now, thanks to the political firestorm that erupted Friday afternoon and continued through today, we find ourselves in a position where markets don't know what direction to take based on which ever candidate wins. Up until Friday afternoon, markets were assuming a Clinton win and essentially a continuation of current political and economic policies. Because the FBI has discovered new information causing them to reopen an investigation into the Clinton campaign in addition to news coming out that the Clinton Foundation itself is also under investigation for illegal activities, a Clinton presidency is no longer a sure thing.
All that said, when the FBI story broke on Friday afternoon, stocks immediately traded lower, but managed to make up some of the damage and close the day just slightly down. The main point that I would like to make in all of this, is that no one knows what the effects of either candidate's policies could be over the next four to eight years. While we have seen several reports from various political and economic organizations that have put forth detailed analyses that describe what the effects of a candidate's policy could be, the truth is, we just don't know.
Even Wall Street, with all its advanced and dedicated resources focused on economic analysis, still struggles with predicting what the economy will do years into the future based on existing policies, let alone unknown policies. The fact is, whether we get a Trump or Clinton presidency, there will still be three branches of government in place to ensure that no one can run wild with a certain ideology.
So without worrying about what could happen with either candidate, everything comes down to the same trusted game plan. Focus on the data at hand. On Friday, we got a better-than-expected third quarter GDP print that showed the economy is not even close to recession. If we add that to the already solid business activity data that we have gotten for October so far, the economy is actually accelerating into year end. We still have another big week of earnings coming up, and I expect a continuation of the overall good reports that we have gotten so far.
So again, let's stay focused on the economic data and let the rest of financial media do all the worrying.