Over the past several weeks, I’ve noted time and again how markets seem to be getting more efficient when it comes to shaking off geopolitical tail events. In other words, the time it takes to shoo away a political black swan seems to be diminishing with each passing shock.
This can be clearly seen in the following set of charts from JPMorgan:
Note that the bounce off the post-election, knee-jerk lows was actually a lot faster than 16 hours. Consider the following chart:
So who bought at the bottom? Well according to his own account, Carl Icahn (of course he’d probably say he bought the dip even if he didn’t). Here’s FT’s account of Icahn’s moves after one of the most historic elections in the history of the country:
When Carl Icahn, billionaire investor and adviser to Donald Trump, saw the plunge in US equity futures in response to the Republican’s capture of the White House, he left the president-elect’s victory party early so he could place a $1bn bet on stocks. His only regret, Mr Icahn told CNBC several weeks later, was that he did not buy more.
We do not know Mr Icahn’s exact timing. At one point after it became clear Mr Trump would win the electoral college vote, the futures market was indicating an 800-point drop for the Dow Jones Industrial Average. Trading in S&P 500 futures was halted after they plunged 5 per cent.
Many investors would not have followed Mr Icahn. For weeks most analysts had been predicting at least a 10 per cent pull back for the stock market on worries that Mr Trump’s mercantilist pledges would spark trade wars and hurt the economy.
However, Mr Icahn exemplified those who saw opportunity; where Mr Trump would prove nowhere near as confrontational with trading partners, his policies would boost growth and his lighter regulatory touch would help sectors such as banking and healthcare.
By the time Wall Street closed on November 9, that reasoning had won the day. The S&P 500 finished up 1.1 per cent, the start of a remarkable rally that has propelled it to a series of subsequent record highs.
I wonder what Bill Ackman was doing.
Incidentally, we now seem to have entered a world where we can’t measure the market’s reaction time to black swans because there’s no reaction in the first place. Take Monday for instance. A member of the UN Security Council lost its ambassador to Turkey and a dozen Germans were killed when a lorry drove through a Christmas market. The market’s response: a shrug of the shoulders.