Market Reactions to Election Results

The election felt like a crushing defeat for the Liberal Democratic Party. I expected the market to drop significantly at the start of the week, but instead, it rose. Perhaps the overall market had anticipated worse outcomes.

When indicators are released, stock prices move not based on whether the indicators are good or bad, but on whether they are better or worse than expected. Investors predict the future and trade based on those predictions, so just before indicators are announced, expectations are already priced in. If the results are better than expected, prices go up; if worse, they go down.

During the party leadership election, the market likely expected Ms. Takaichi to become the leader. When the results were worse than expected, the market dropped significantly. Here, "worse" means worse for stock prices, not that there is anything wrong with Mr. Ishiba.

The reason stock prices rose after the general election is likely because investors had anticipated even worse outcomes. They might have even factored in a change of government. Since the worst-case scenario was avoided, stock prices went up. While it's good that Mr. Ishiba became Prime Minister, the real challenges lie ahead.

Next, there will be an election to decide the governor of Hyogo Prefecture. I need to go vote again.

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