Markets hate uncertainty, and at moments of uncertainty, they typically react with volatility.
And then as time passes, the market digests whatever new news there’s available and assesses whether it’s really had a fundamental impact on the things that matter for the direction of markets. The things that matter are typically interest rates and the direction of those, the economic cycle, what part are we playing in that cycle today, and things like inflation.
It’s not clear that this change today has in any way influenced those fundamental drivers. And as a consequence, what we are experiencing today is likely to pass, get digested, and we will find a new path for markets following this time.
Politics can seem very important. But I think when we look back on election cycles, we have to realize that there’s generally a disconnect between the rhetoric of the politicians and the facts behind markets and the facts behind the economy.
There’s also a difference and a disconnect between the promises that are made and the outcomes that are ultimately delivered, and so when we think about political influence on markets, it tends to be far more sentimental than it is truly fundamental. Of course, it’s hard to hold on to those ideas, but ultimately the market will see through this patch of uncertainty and recognize where the true drivers for future outcomes are.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.