In the runup to an election which will determine both the presidency and control of congress, the stock market has been almost oblivious to changing poll numbers and has stayed near its all-time highs, which were set AFTER the pandemic sprung from the bat cave. The Pollyanna explanation is that the stock market focuses on the long-term and the long-term prospects for the US economy are good no matter who the next President is or whether the Democrats control the Senate as well as the House.
The Pollyanna explanation is BS. There is almost nothing as short-term as the stock market. Ask the CEO of any public company (I was once one such), what happens when quarterly earnings are released, forecast, or hinted at. The mob of investors (and robot investors) who rush in or out are about as long-term oriented as my eleven-month old puppy at dinner time.
The market is reacting to the twists and turns of more stimulus. Today it was down quite a bit because Nancy Pelosi gave the White House a deadline of tomorrow for making a deal and nothing has happened yet. If the White House doesn’t cave, says Nancy, no deal until AFTER THE ELECTION. That’s three weeks away, too long-term for the stock market.
Demand created by printing money and shoveling it out the door is hardly long-term. The demand evaporates as soon as the stimulus stops. But the stock market has become addicted to the temporary high of the stimulus drug. The addiction actually began with the recession of 2008. Remember Obama’s close to one trillion-dollar stimulus (seemed big then) and the bailout of the banks, which was another sort of stimulus. Although the federal government didn’t start writing huge stimulus checks again until Covid hit, the Federal Reserve never took back the money which it had poured into the system and kept interest rates incredibly low.