Through Friday, in spite of very good earnings reports from companies, the S&P 500 was down nine days in a row, the longest negative streak since 1980. The total decline was just 3.1%, but the decline has been relentless and deflating to investor psychology.



In our view, there are two key reasons for the consistent decline. The first reason is liquidity - a word we use here to mean investor willingness to participate. It appears that many investors view the divergent possible outcomes of this election as a risk. The thinking is that even if stocks are worth buying, the uncertainty of Election Day remains high for many reasons. Instead, the theory goes, why not just wait several more days. Meanwhile, those interested in cutting their exposure to equities had a very good excuse to sell.

The second reason, for the sell-off, and we are only looking at coincident facts to make this statement, was the rising odds that Donald Trump would win the election. On October 24, the day before the losing streak started, Nate Silver's 538 Polls-Plus Model had Trump's odds of winning the election at 16%. During the nine-day losing streak, those odds rose to 36%.

If a 20 percentage point increase in Trump's odds of winning generated a 3.1% decline in equities, then a simple back-of-the-envelope calculation suggests an actual Trump victory (which would boost his odds of winning by an additional 64 percentage points – to 100% from 36%) could result in equities suddenly dropping about 10% below the Friday close, or for the S&P 500, to about 1,880, which would be the lowest level since February.

As we wrote last week, however, we think this would be a great buying opportunity. Think of it like America's version of Brexit. The S&P lost almost 6% in the two days after the Brexit vote but, within two weeks, was hitting new highs.