Markets love lame ducks

Next week’s too-close-to-call US presidential election must make a big difference to the way stock and bond markets perform over the next few years — or so you might think. Yet experience suggests that investors should probably stifle a yawn rather than place too much significance on whether Obama or Romney comes out ahead. In practice, markets rarely assign as much importance to the outcome as politicians and their supporters think they should.

For this there are some sound historical reasons. One is that hardly any politician ever succeeds in implementing everything he or she has promised in order to get elected. In the United States, the ability to deliver on promises is additionally constrained by occupants of the White House having to work with a Congress that is often of the opposing political persuasion. However fierce the campaign rhetoric, the checks and balances of the US constitution often produce muddle-through outcomes that party activists hate but markets tend to like.