Conventional wisdom has it that political trends are a key determinant of the stock market’s gyrations. As an election approaches, commentators endlessly debate the effect the outcome of the election will have on stock prices. Investors weigh up which candidates will influence the market to move up or down. Statements like, “If Jones is elected, it will be good for the market, but Smith’s election will cause stocks to tank” are common.

If this causal relationship were even approximately correct, there would be evidence that a transfer of power from one party’s leader to another affects the social mood, hence, the stock market, in some very specific ways. There would also be evidence that certain political parties or policies reliably produce bull or bear markets. There is no study showing any such connections or correlations. On the other hand, it’s not hard to see just the opposite at work.

A strong and persistent trend in the stock market dramatically biases whether an incumbent president or the incumbent’s party will be re-elected in a landslide or defeated. In all cases where an incumbent remained in office in a landslide, the stock market’s trend was up at the time of the election. In all cases where an incumbent lost in a landslide, the stock market’s trend was down—as it was prior to the 2008 and 2012 elections that swept Mr. Obama into the White House.

Again using the stock market index as a surrogate for how the Ameri- can citizenry rates the future, we find that there is not a single case in which an incumbent was re-elected despite a deeply falling stock market or was defeated in a landslide despite a strongly rising market. Figure 1.2 shows the overall situation through the 1998 election. Here we see that if the mood of the populace is positive just prior to the election, the incumbent or his party are always returned to the White House; if not, they are thrown out.

With the ideas of context, drivers of context (complexity gaps and social mood), random triggers, and the like in hand, there is just one last item to deal with before embarking on a much more ambitious discussion of all of these elements. That is the issue of not only how to survive an X-event, but how to actually be a beneficiary of it. For that, we need some background ideas involv- ing the resilience and the processes of social change.

Click to Buy Paperback

E-Book

Bundled