Our lives and our decisions are governed by our moods. We live as per our mood (socialize if we are happy, stay introvert when depressed), we eat according to our mood (spend when we think we have money and are happy, or sleep with a just Ramen noodles when we are tired or are not affluent), and spend what we feel like. In short, our actions are governed by our mood swings. In the same respect, we vote as per our mood i.e. if we feel good, we vote for the incumbent. On the other hand, if we feel bad, we register revolt through our vote. In other words, voting is the best representation of the collective social mood of a society.
Another way to analyze the social mood is through the stock market, because Stock Market is the barometer of the broader social mood. When market rises, optimism increases and when it declines, pessimism saturates. This cyclic behavior is so common that it gave way to the contrarian trading strategies. This is because society’s collective optimism peaks near the top, while collective fear peaks at the bottom. Although there are many ways of measuring the sentiment, this article will address the relationship of people’s vote and the broader social mood.
At this point it is clear that both Stock Market and Voting exhibit social mood. The only caveat is the delay between the social mood exhibitions through the Stock Market VS Voting. If one wanted to assign a timeline to social mood exhibition, Stock Market would be the first responder, while geo-political events will be the last responder. This is because the social mood pushes the society to take actions in accordance with the broader social mood. These actions range from Voting out the incumbent leader to starting a War with another country. The interesting to keep note of is the fact that this social mood change is typically displayed through the stock market price pattern.
Now, if we look at the current situation from the stock market perspective (shown below), it is very clear that the market has been rising under President Obama’s administration. In fact the market has more than doubled under Obama since March 2009.
|DJIA: 6500 ==> 13500|
|Gold: 900 ==> 1800|
|Oil: 35 ==> 90|
This stellar stock market and commodities market performance along with the latest consumer confidence reading (consumer confidence is touching 4-year highs) and the low VIX numbers, clearly suggest that the social mood is very optimistic. Although we know that these 100% gains are a factor of prior market collapse, the short-term memory of the populous will allow these gains to work in the favor of the president.
In past, when mood has been this optimistic, we have rarely seen an incumbent losing the elections. In other words, no matter how bad President did during his tenure, he has done enough good to keep the asset prices afloat, avoid a second recession and bring back optimism among the masses about the future of the country. Therefore, from a stock market and social mood perspective, President Obama is the favorite to win today’s presidential elections.
However, if the President loses today, it would mean that elevated stock market prices are not the sole representation of the Social Mood. And that people do take into account their personal situations when dealing with things like elections.
Next Post: Implication of Election results on the Stock Market (An Elliott Wave perspective)