It is increasingly likely that the outcome of the presidential election in November may take days, even weeks, to unravel. A recent model went so far as to predict a “Red Mirage” — the appearance of a Trump victory in the days before mail-in ballots tilted the election towards Biden.
This would be confusing and confounding in ordinary times. But such an outcome could lead to a prolonged, disruptive power struggle in this election given President Trump’s history of election fraud frauds — even when he won in 2016.
It goes without saying that this would be bad for democracy. But it might also spell trouble for something more prosaic: the stock market. There have only been two times in the past 150 years when the presidential election was not brought to a swift, unambiguous conclusion. The first happened in 1876, in the race between Democrat Samuel Tilden and Republican Rutherford B. Hayes.
The vote took place in early November, and while Tilden appeared to win, his lead consisted of a single electoral vote, with contested results in three states. The colossal mess that ensued wasn’t resolved until early March.
In the meantime, overall stock prices declined approximately 10%, according to data first compiled by the economist Alfred Cowles. But there’s little evidence to suggest this drop was tied to uncertainty over the election. While the New York Times noted in its coverage that “politicians, like stock gamblers, are divided into two classes – ‘bulls’ and ‘bears,’” the newspaper and virtually all others covering these events viewed politics and finance as effectively separate, and unlikely to influence one another.
Back then, presidents had far less influence over economic policy, so the stakes were simply lower for market watchers. Likewise, there was no round-the-clock, blow-by-blow coverage of Tilden versus Hayes. Traders didn’t have much information about the backroom machinations that eventually resolved the election, and they didn’t seem to pay it much attention.
The same, of course, cannot be said of the more recent contested election. In 2000, George W. Bush and Al Gore squared off. The morning after everyone voted, all eyes turned to Florida, where hanging chads left the outcome in doubt.
The market was not pleased. “Wall Street Wants a Winner,” declared the New York Times two days after the election. The NASDAQ took the deepest dive at first, plunging 5.4%. But other sectors endured far less dramatic declines, reflecting optimism that the whole business would be settled pretty quickly.
No such luck. Three days after the polls closed, Democratic candidate Al Gore gave a pugnacious interview, making it clear that he wasn’t going to throw in the towel without a fight. Share prices swooned, and a trader interviewed by the Wall Street Journal described the crux of the problem: “The market doesn’t like not knowing who the Leader of the Free World is going to be.”
The statement neatly captured how traders transform this abstraction we call the market into a sentient being that has, well, feelings. With all this talk of litigation, refusals to concede, and other electoral saber rattling, the market was starting to feel unwell. Indeed, by the end of November, the S&P 500 had plunged close to 10%; the NASDAQ had plummeted 19%.