So Much for the Wisdom of Financial Markets

What bliss! As is well known on Wall Street, this specific alignment — a Democratic president, with Republican control of at least one chamber in Congress, limiting the president’s freedom of action — has been wonderful for the stock market.

In fact, it has been the best of all political variations for the stock market since 1900, with annualized gains of 10 percent, according to data from Bespoke Investment Group. The worst alignment has been the current setup, a Republican president with Democratic control of a chamber of Congress, with annualized returns of a mere 1.8 percent.

So perhaps it shouldn’t be surprising that the stock market went on a tear. Through Thursday, it was the best weekly performance in seven months, despite those rocky moments during the early stages of vote counting. Stock futures plunged overnight, then moved upward on Friday morning as the vote counting in Pennsylvania showed a Biden lead, and they oscillated throughout the day. Expect these mood swings to continue.

A divided government, one possible outcome of the still-fluid election, may not seem to be an obvious boon for a country in which more than 235,000 people have died of the coronavirus or other causes linked to it, and more than 100,000 are found to be infected every day; a country in the grips of a deep recession, one that has been all too obviously rived by deep political, social and racial conflicts.

Mr. Trump has made it clear repeatedly that whatever the vote tallies may say, these conflicts aren’t over.

The markets have been saying something, no doubt. But what?

I’d say they have been expressing deep confusion and provisional relief: bafflement at the combustible political situation in the United States, and satisfaction that matters are not (yet) much worse.

I don’t see brilliant forecasts of electoral results here, however. Instead, the markets have changed paths as rapidly as a squirrel, responding to snippets of information, not predicting events with any discernible perspicacity.