Yesterday’s thought bubble that the US Mid-terms may result in some stock market stability has evaporated like a snowflake in the desert.
From a long-term risk management perspective, the immediate price action is telling.
It was clear the market was reacting bullishly to the prospect of a cessation of the big spending by Democrats. There was also some perception that a Republican influence would help the fight against inflation. This may still be the case.
The Republicans are highly likely to control at least the Lower House. Still, though, it was not the clean sweep markets had begun to anticipate.
With the results looking incredibly similar to the 2020 outcomes, it appears very few people are changing their votes. In other words, whatever view or belief they previously held, they continue to hold regardless of the economy and inflation being worrisome.
This is unusual historically, and may well have everything to do with the algorithms that will endlessly show you subjects and material associated with what you have previously been interested in.
For all of us then, and the unrest in Brazil being a re-write of what happened in Washington two years ago being another strong example, we all need to be mindful that we have to make an effort to hear the different or opposing views.
It will not be prominently presented in our social media feeds but is essential to quality decision making.
For markets, the fall back in prices, even with a looking to be just across the line win for the Republicans, suggests the underlying weakness is indeed profound.
Not only are redemptions growing every day forcing funds to sell, but the underlying fundamental realities for the USA and Europe continue to deteriorate.
Raising interest rates may eventually stop extreme inflation, but nothing it would seem will save the US economy.
The expectation here remains, if anything with an increasing degree of confidence, that stocks are going to fall a further 20% from current levels.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
