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How Wall Street reacts to election recounts

CHAPEL HILL, N.C. — The stock market has taken notice of the presidential election recount efforts underway in Wisconsin, Michigan and Pennsylvania—and doesn’t like what it sees.

In fact, so long as there’s even a shred of possibility that the election results could be overturned, the uncertainty will weigh on the market.

 refer, of course, are those filed in recent days by Green Party candidate Jill Stein and additional ones expected to be filed this week. Hillary Clinton’s campaign staff has announced they will participate in the recount efforts, though for the record they don’t think the recounts will change the results.



Results now show that Trump beat Clinton by more than 22,000 votes in Wisconsin, which has 10 electoral votes. Totals in Michigan, which has 16 electoral votes, show Trump won by nearly 11,000 votes. In Pennsylvania, which has 20 electoral votes, he won by about 75,000 votes. All three states would have to flip to Clinton for her to win.

The recounts are nevertheless being taken seriously enough by President-elect Donald Trump to be deserving of a series of angry tweets over this past weekend.

Donald J. Trump ✔@realDonaldTrump

In addition to winning the Electoral College in a landslide, I won the popular vote if you deduct the millions of people who voted illegally

It makes sense that the stock market would take the recounts seriously as well. And a number of the advisers I monitor on a regular basis are beginning to take notice.

One is Jon Markman, editor of The Strategic Advantage advisory service. Over the weekend, he advised clients not to “forget that part of the [recent] run-up has resulted from relief that the election was not contested. Now that a recount has been ordered in Wisconsin, with Michigan and Pennsylvania potentially to follow, markets are likely to lose some steam.”

Support for Markman’s concern comes from how the stock market performed the last time the outcome of a U.S. presidential election was in doubt for some time after Election Day. That came in 2000, of course, when the outcome wasn’t final until Dec. 12—five weeks after that year’s Election Day.

The accompanying chart shows how the Dow Jones Industrial AverageDJIA, +0.12% performed over this period. Notice that the Dow fell more than 5% over the first two weeks following Election Day; this came as a legal battle escalated in Florida. It had quickly become clear that the results of that state’s vote would determine whether George W. Bush or Al Gore would win the presidency, and the process of recounting ballots quickly became mired in complex litigation.

In late November, as you can see from the chart, Florida’s election board declared Bush the victor. And though Gore immediately contested that ruling, the stock market did begin to rally. Even so, on Dec. 12, when the legal battles were finally ended by the Supreme Court’s decision, the Dow was 3.1% lower than where it stood on Election Day.


President-elect Donald Trump dismissed charges that his victory was illegitimate, alleging that he "won the popular vote if you deduct the millions of people who voted illegally.” He didn't provide any corroboration for the allegation.

The Dow’s path that year is far different than the one it has taken this year, of course: It today is nearly 1,000 points higher, or more than 4%.

To be sure, this year’s post-Election rally was caused by more factors than overcoming the uncertainty of who would be our next president. Still, it behooves us to pay close attention to how the various recount efforts unfold in coming days. If they gather any steam whatsoever, look for the Uncertainty Factor to return to Wall Street with a vengeance—and for the stock market to fall.

For more information, including descriptions of the Hulbert Sentiment Indices, go to www.hulbertratings.com or email mark@hulbertratings.com

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