Studies Show Optimism Is an Economic Catalyst

Studies Show Optimism Is an Economic CatalystMarket Strategies conducts numerous thought leadership studies for our clients. These studies are often released under the client brand so you may not even know they were conducted by us when you read about them in the New York Times or The Wall Street Journal, or hear about them on CNBC. While we can’t give away specific findings from our studies, we can tell you that the most recent studies have been impacted by a fascinating polling phenomenon—optimism.

On the night of the presidential election in November 2016, the initial reaction to the stunning results was felt full force by the market. After-hours trading had the market down nearly 600 points, but by 9:30 a.m. Wednesday, everything had turned around and the Trump rally had begun. The prospects of regulatory relief, infrastructure spending, tax cuts and repatriation legislation fueled new market highs and a spectacular financial services rally.

We saw a similar phenomenon with our polls in the field immediately after the election. Surveys on mergers and acquisition (M&A), investment, business outlook and even international businesses saw surges in their respective positive indicators. Some of these surges might have been considered “irrational.” After all, the new president had promised the largest trade policy shifts in generations—shifts that, if executed, were widely believed to be negative toward US trade relations.

The optimism surge was both real and strong. We classify it as optimism because in most cases, it resided at the macro level—firms considering M&A were significantly more optimistic about the business climate, but the vast majority reported that any changes would not directly impact their activity near-term. Findings were similar across all of our study types.

While the surge in optimism is, as we noted, real, its endurance and fragility bear watching. If change proceeds apace and wins translate to changes in behavior, the surge in optimism will endure. On the flip side, if the political process snarls further or other factors intervene, it could shatter.

If the optimism surge does shatter, attitudes across economic issues will fall sharply below pre-election levels and recovery will be far more stubborn. This phenomenon bears watching!

As a long-time political consultant and current research manager, I am looking down the road to help our clients benefit from the upside or safeguard against the downside of this optimism surge. Email me if you want to explore how to take advantage of these events.
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