Yale University Professor Robert Shiller suggests it’s an unprecedented time in U.S. politics. He gives his take on the market and U.S. midterms with Mike Santoli.
Robert Shiller: Unwise for investors to follow midterm election year patterns in market
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Professor Robert Shiller says midterms could make US markets more vulnerable
Professor Robert Shiller of Yale University
Welcome to trading nation. Mike Santoli investors are looking for clues as to what the midterm election could mean for the markets and the economy. For more on that let's bring in Yale economics professor Robert Shiller. Professor shoulder great to have you here. It's interesting. It strikes me that in this particular midterm election cycle there is a tremendous amount of focus on the patterns that have been displayed by the past in other midterm cycles and everyone seems to think it's it's good to be bullish just by essentially passing by tomorrow. What do you think this midterm election could mean how it reflects what's going on in the markets and the economy.
This is a very different midterm election.
It's really of presidential confidence vote. So I don't know that it's also a rather intense time. There's a lot of anxiety at this point. A lot of anger. I don't think that this is easily grouped into past midterms. I think that the history of the market responses to that is not really doesn't tell us very much.
And so you say that this is almost more intense perhaps emotional midterm election. What are the implications of that if we're looking to try and see what the response to it might be. How the markets and the economy might react down the road.
Well you know the market is almost done forecastable over short intervals of time. And that's because it's not just the level of emotions it's the overall narrative that goes along with it. Well one thing that is somewhat reassuring is I have a I called buy on dips confidence index which I based on questionnaires surveys and the index asked you if the stock market would drop 3 percent tomorrow. What do you think it would do the next day. Computer confidence that buying on dips is a good thing right. You know in recent months we've had strong confidence we saw two major drops in this in January February and then in October. And both times the market had something like a 10 percent drop but it recovered somewhat. So I'm not. It's not even if the election is very disturbing it doesn't tell us that something dramatic is going to happen in the stock market.
Right now. I mean it clearly the sort of muscle memory is there. Vesture stand ready to try and buy those dips. I assume that's because with all the political noise people keep pointing to the fact that the observable U.S. economy all the metrics seem like they're they're lining up correctly. I mean is that the main narrative that you think is in control of investors minds at the moment.
Yeah I think it's partly the Trump narrative he promised to make America great again and the economy is growing you know in the second quarter was four point two percent which is pretty good. It's not as outrageously good as some people would have you believe. But it looks solid. Earnings growth has been good and people take that as a sign that they should raise the price on the market. Actually I think they overreact to these and these pieces of information. But still everything is OK now except for the emotions that we have about. Political polarization and were upset by recent events like the synagogue shooting has us on edge. It makes it makes maybe the risk of some big change. Happening greater. But it doesn't make the market very predictable.
No certainly not and just quickly on on the Fed because it does seem as if people are sensitive to any signals that the economy is later on in the cycle and that the Fed might hasten its end. Now we have the president kind of publicly opposing fed.