Why Does an Election Boost the Stock Market?

I woke up at my usual time today and forced myself to get out of bed even though I haven’t been feeling the best lately. Why? Because then I warmed up my car (we got frost this morning), drove to my polling place, and performed my civil duty of voting. I’m definitely not going to tell you who I voted for, because I will likely make someone angry, but I am going to tell you that this election is important for a lot of reasons. Obviously things like women’s rights, same-sex relationship rights, and other things are coming up all over the place, but the primary topic on a lot of people’s minds is the economy.

I was poking around this morning and reading some articles about the economy and the election. As it always does, the stock market is rising on election day and makes things look like they’re going to get better. Seems weird, doesn’t it? It’s not like a decision has been made first thing in the morning! Now, I have read a couple of articles that say that Wall Street is set for another 4 years with President Obama; incumbents are often reelected for a second term, even if the economy is poor. Something really messed up has to happen in order for an incumbent to have an upset.

So, if that’s the case, why is the stock market up? Aren’t people saying that it’s too close to call? Why would this impact the stock market today? I think there are a couple of reasons.

- The perception of a better future. No matter what way you voted, you still think that there’s a better future ahead. Because a lot of the stock market is based on psychology, the perception of a bright future pushes people to take more risks in the stock market. Those risks make prices go up, and prices going up means that the market looks like it’s bouncing back. Does that mean that it’s going to stay up? Maybe, depending on who actually wins, but we’ll see.

People are more active in general on election day. If you vote on election day, you’re also likely to do other things, like watch the stock market and other news stories. If you’re watching all of the positive things happening (or negative things), you’re more likely to jump on the bandwagon and make more of them occur. This goes hand in hand with the last one, merely because it’s a domino effect. A good domino effect, at least for a few days, can help the economy a bit.

Do you think the election results will affect the economy? Do you think four more years will end up being a disaster? Or will it be better than Romney winning? If you haven’t done it yet, go vote! Your vote counts, even if you don’t feel like it does. This year especially. So, now that I’m off my soapbox, have a great week, and we’ll see you next week!

  1. Carnival of Personal Finance: Things I Lost This Week Edition - pingback on November 12, 2012 at 2:03 pm

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