Do the markets even care about the US election?

Katie Martin (0:09)

If you've been living in a cave on your own with no Wi-Fi and your fingers in your ears for the past four years, then I'm here to tell you that finally, finally, the US presidential election has arrived. These Americans really drag this stuff out, my God. Now, every election I can recall in my entire adult life has been billed as the biggest, most important, most consequential ever, but this time, it really does kind of feel like that. So today on the show, we're asking, do markets even care what the result is? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, fortifying my garden bunker and stocking up on tinned food just in case. And I'm joined down the line from New York City by none other than Rob Armstrong, lord of the Unhedged newsletter. Rob, it's a wonderful day for democracy.

Robert Armstrong (1:03)

My heart is swelling with patriotic spirit today.

I say that somewhat sarcastically, but only somewhat. I actually do love election day and American democracy and all that. So it's a good day, whatever happens.

Katie Martin (1:18)

Have you voted already and have you kept your vote secret from your wife?

Robert Armstrong (1:25)

I voted like a week ago and no, it's no secret in our household.

Katie Martin (1:31)

Okay.

Robert Armstrong (1:31)

But I'm not telling you a damn thing.

Katie Martin (1:34)

No, I wouldn't advise that you do. Now, so look.

Robert Armstrong (1:39)

Do markets care, Katie? You go first. What do you think?

Katie Martin (1:43)

Do markets care?

What I was thinking was anthropomorphism is bad. So it's bad to talk about markets like they're people. They have feelings and preferences and so forth.

Robert Armstrong (1:56)

And I think that's particularly true in this case. There's very little that is cut and dried about what this election will mean for markets over the next couple of years. Some forces point one direction, some forces point another. You know, I think people get hypnotized by the fact that the last time Trump was elected, markets immediately, the US stock market, immediately rallied quite strongly. But that actually made sense and had a very, very simple explanation. He had promised and he won, and the Republicans won the majority, a majority big enough to deliver a big corporate tax cut. And at that point, it's just math. Lower corporate tax, higher earnings per share for American companies equals higher stock market. And that just mechanically is how it goes.

Katie Martin (2:49)

And also he wasn't priced in, right? His victory was a surprise. And so it had to be kind of priced in at that point.

Robert Armstrong (2:57)

Yes. Everybody knows it's almost 50-50 now. There was a glorious moment where the betting markets were just obviously wrong. They had it like 65 or 70% to 35% for Harris, which even if you think Trump is gonna win, those odds were just wrong. And so I like was like, I've got to bet on this.

And so I took my small amount of money available to a poor journalist, and I wired it to Cal-She, one of these betting sites. And in the two days, it took my money to clear, like the bank transfer to clear, the odds closed by like 15%.

Katie Martin (3:37)

Right. The trading acumen strikes again.

Robert Armstrong (3:42)

Yes, my famous trading acumen strikes again. But I did, they were still a bit wide, and I did, even though my guess, and I'm not revealing anything, my guess is we're going to get another Trump presidency if you put a gun to my head and force me to answer. I still put money down on Kamala Harris, because when the odds are wrong, you're supposed to put money down. So that's what I did.

Katie Martin (4:05)

I mean, one sort of side issue from this whole discussion is the political betting markets in the States are rubbish, and we should never pay attention to them ever again.

Robert Armstrong (4:16)

But they've gotten less rubbish. The point is that when the FT was writing stories about them, right about the time, I thought, holy crow, I've got to jump on these odds. It was like there were these whales, very large single bettors were throwing it off. People were talking about how the betting community was not representative of the electorate, etc. But the fact is greed eventually prevails. There were a lot of people like me who are like, well, if the big dumb whale wants to put a huge bet the other way and the odds are distorted, I'll take some of that action.