Today’s election has the potential to shake equities and drive the trend for the market for the rest of 2010 (though Wednesday’s FOMC move might be more powerful).
But how have markets reacted to Democratic or Republican surprises in the past?
In various ways, unsurprisingly. There is no obvious trend, but a big Republican win could mimic the results of 1994, in which the market was flat the day after.
One reason for that may be that markets had already priced in a big Republican win, which they may be doing right now too. So if tonight’s results see Democrats do better than expected, or Republicans surge to an even bigger win, we may be in for a big day tomorrow.
1998 Election: Republicans lose seats post Lewinsky scandal, but remain in control as market move upward.
Dow movement day after: Down 0.23%
Election details: Governor Bush defeats Vice President Al Gore in a protracted saga involving the Supreme Court. Markets were not aware, for several days, who had won the election. The Republicans lost some seats in the house, and the Democrats also made small gains in the Senate.
2004 Election: President Bush wins reelection and Republicans gain in the Congress, markets love it.
Dow movement day after: Up 1.01%
Election details: President Bush won reelection against Democratic Senator John Kerry and Republicans won some small gains in the House and Senate elections.
2008 Election: In the midst of the financial crisis, Dow falls heavily day after relative unknown Obama elected.
Dow movement day after: Down 5.05%
Election details: Democratic Senator Barack Obama gets a massive victory over Senator John McCain to become President of the United States. The country is in the midst of the financial crisis, so the market's slide may have more to do with that event, than Democrats making gains in Congress.