Is there a basis for the “blue wave” or the “gridlock is good” narrative? At best, there are just some past events that can be used as an initial point for extrapolation. The presidential polls providing a basis for equity prediction was a story without theory. There is a political cycle but that theory was not linked to the blue wave story.
There will be no blue wave. There may be gridlock, but this just means that it is less clear what will be the policies of any administration. It is not a theory linked to investment performance except as repudiation of a blue wave. Two stories completely at odds with each other but leading to the same outcome.
Narrative is a powerful tool but used inappropriately it can harm an investor audience.
- Narratives can be used to explain but are not always stories that can predict.
- Narratives do not always add to our understanding but can subtract from reality.
The alternative is not to fit price behavior to a story, but just follow the prices without any explanation. Prices trend up which means buyers are clearing the market at a higher price. There is no story forced on the market. The accumulated behavior from market participants changes prices and that may be the only signal necessary in an uncertain world. Some investors may add more to the trend story, but without clear information, the unadulterated trend is still a good base position for any forecast.