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We Treat Money like the Election… it’s Over

Ever realize how emotions can get the best of us? Results from the recent United States Presidential Election surprised the world and left many Americans in shock. Going into election day polls, media, bookies and the stock market indicated an all but certain victory for Clinton. But as the night wore on, it became clear the momentum had shifted to Trump. As we began tallying early results, people reacted in a big way, and so did the stock market.

Most of Wall Street predicted that a Trump victory would lead to a major sell-off for global markets, and for several hours that seemed to be the direction it was going. At one point futures contracts on the S&P 500 (a way to bet on the stock index going up or down) had lost more than 5%, equating to trillions of dollars potentially evaporating from stocks. But somehow the S&P 500 recovered its losses and ended the session up more than 1% the following day. If you thought results from swing states were unthinkable, these swings in the stock market were downright historic.

While sharp declines of this magnitude are not unheard of, they are uncommon. Earlier in the year we experienced a similar reaction to results of the UK’s Brexit vote. Markets suffered deep declines over the next two days, but then bounced back in the following weeks. This time, however, markets dropped rapidly and then fully recovered within 24 hours. I’ve been investing since I was 13 and have never experienced anything like this.

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Full disclosure, I’m critical of both candidates and had previously accepted that I wouldn’t be excited for the outcome either way. What interested me most wasn’t the results of the election, but rather how people would react. While keeping an eye on the markets I viewed deflated gazes from Clinton supporters and as the results tipped more in Trumps favor, you could sense the mounting uncertainty. During these early stages of the count, when there was the most uncertainty, markets dropped to their lowest levels. Deeper into the night, as uncertainty of whom would be the victor dissipated, markets calmed. We’ll have to wait and see how the stock market performs through the pending Trump administration, but one thing’s for sure, markets reacted much stronger to uncertainty than the results themselves.

The behavior witnessed in the stock market was similar to reactions seen on television, Facebook and Twitter. Protestors took to the streets, publicly burned American flags, and many threatened violence or used defamatory language. In the heat of the moment, the part of our brain responsible for our fight-or-flight response, the amygdala, becomes emotionally hijacked. These emotions can lead us to act irrationally and we may say or do things we later regret. Unfortunately, we treat money the same way we treat the election, with tons of emotion. It’s not easy to catch yourself in the moment, we make emotional financial decisions just as fast as we post to social media. It’s hindsight that can help us learn from experiences to avoid these missteps in the future. The key is increasing awareness, but humility and embarrassment can go a long way too.

Regardless of how you voted or feel about the results, fact is the sky is not falling. The day following the election my gym was open and there was plenty of traffic on my way to the office. My credit card still worked, the pumps at the gas station filled up my tank, my cell phone had service and I met with colleagues over lunch at a restaurant. It was life as usual and irrational fears of the market crashing were debunked. I share this to remind everyone that life goes on across the globe and in our local communities. The best advice I ever received came from my mother. I was having a difficult time getting along with a teacher in grade school, my mom told me “Life is not fair, tough shit, deal with it”. She was right.

box-of-chocolates

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About Stephen Rischall

Stephen is an award winning fiduciary financial advisor. He began learning to invest at the age of 13 and helped manage the University Corporation Student Investment Fund while studying finance in college. Stephen has been featured as the financial expert for millennials on live radio and in the news. He is an avid adventurer and is passionate about helping people make smarter financial decisions.
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