'Markets hate uncertainty' is a catch-all explanation for volatile prices and was well used following the Brexit vote. Equity markets are also commonly described as moving to 'price in' certain outcomes. Let's take the election of the 45th US president as a test case.
Hillary Clinton had been the assumed victor, and many market commentators and major broadcasters were describing the eventuality of a Trump victory as a 'black swan' event that could trigger a "massive sell-off". On this reading, global investors would give US assets a kicking just like they had UK assets following the Brexit vote.
But an unexpected result does not have to mean a bad result as far as investors are concerned. It was not at all clear why a Trump presidency would mean an immediate price downturn. His protectionism on trade is arguably the biggest political risk, and that is an area where the Republican has more scope to act unilaterally. But his and his party's policies of reducing taxes on businesses, investments, incomes, inheritance and repatriated cash could also provide a clear boost to companies and investors.
So the idea that the stock market could move immediately to reflect all the eventualities of four years (and possibly eight) of a Trump presidency is faintly ridiculous. If that's true, perhaps it was the 'uncertainty' of his administration that markets could have been expected to mark down. But again this seems contradictory: the election of one of Mr Trump or Mrs Clinton arguably reduces the uncertainty over policy direction considerably. It is now a question of which of the property mogul's ideas can survive the balancing act of the US legislature.
But Brexit, though. One of the reasons that we saw sustained market changes after the referendum result was the fall in the pound, as the UK's current account deficit was laid bare. This was widely flagged beforehand, and following sterling's decline no one would credit the market with genius for doing the mathematics on how companies' earnings would be affected.
The business sector and market-watchers are now, rightly, fixated on how the exit negotiations play out, and the range of options is admittedly far tighter than those facing the US. The spectrum ranges from a 'hard' Brexit that includes no access to the single market, to a 'soft' Brexit that means greater compromises from the UK government on free movement. The consequences of these can be calculated.
But even here the market's perceived capacity for predicting an economic downturn, including a house price sell-off and a drop in consumer confidence, has been undermined by the post-referendum story: one only has to look at the housebuilders' price rebound since the July low.
What we can say is that certain stocks and sectors can re-rate based on changing expectations of what the future holds, especially if the options are specific enough. The major pharma stocks look to have been pricing in the risk of a Clinton presidency, given the specific pledges that she had made regarding drug pricing: that political risk appears to have fallen out of the price.
This is not to say that market sentiment does not matter. With more data we can see longer-term trends in investor sentiment, and track objectively the relationship between asset prices and monetary or fiscal policy. Brexit and President-elect Trump have told us a lot about the changing political tides - they may also have taught us, again, to separate our auguries from our equities. A Trump presidency may prove a tragedy for US society, but that's another matter altogether.
