THE INVISIBLE RIGHT HAND. It's a hoary truism that markets favor Republican rule, though one that, till now, lacked much evidence. Stock prices, after all, have consistently done better under Democratic administrations than Republican rule. But Justin Wolfers at the Wharton School of Business and Erik Snowberg and Eric Zitzewitz at Stanford University found a more telling methodology for testing the preference: They researched how markets performed during the 48-hour period starting when the American people were actually voting for president. And, indeed, when exit polls, expectations, or events favor Democrats, the markets make a sad face and begin erasing investor money. When things swing back towards the right, spirits -- and stock portfolios -- lift. Rightly or wrongly, Republican victories cheer markets.
Just to note the illogic here: It's literally true that markets do better under Democrats, yet they still prefer Republicans. Possible explanations abound, from rich investors rejoicing over the redistribution they're about to enjoy to businesses salivating over expected corporate welfare or regulatory favoritism. Whatever the reason, the disconnect isn't exactly a reassuring demonstration of the market's logic and rationality.
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