Trump vs Clinton – what stock markets make of it so far
One would think that an election campaign could withstand only so much controversy and that by now, logic would make a Clinton victory guaranteed, but I suspect right to the last, the result will remain in the balance. For Americans, it seemingly isn’t so much about Trump, rather what he stands for in very simple terms, which is an alternative, any alternative, to Hillary Clinton. So the negative press and the forced apologies will keep coming until the votes are counted and he will remain a potential winner, and threat in equal measure, until the end.
So we hear the headlines, but in terms of stock markets and global growth the US election outcome is as much of an uncertainty as the Brexit vote became in the UK and we all know how that result defied expectations. A Trump victory spells uncertainty and as we discovered with the U.K. Brexit vote, markets don’t like uncertainty. A Clinton victory represents the status quo.
As yet, few fund managers are making changes to portfolios in anticipation of either outcome. One could argue that tacitly, portfolios are therefore positioned for a Clinton victory, but the popular vote is too close to call.
What could happen to markets if Clinton wins? Well, she has had an ongoing war of words with the biotech industry and so one could foresee pharmaceutical stocks perhaps falling, but having said that, biotech stocks suffered a massive fall last year when she initially expressed her views on the sector and many believe the sector was oversold at that time, so the reality may be that the reaction has happened already. Clinton is likely to regulate further and so that may be a negative for financials and multinationals, but one could anticipate a continuation of the present Obama administration to a great extent.
A Trump victory brings much more uncertainty. He has said a lot, but not much that directly correlates to actual policy. It is also worth noting that changes to US policy are not easy to bring about. One only has to consider the struggles that Obama has faced over healthcare and foreign policy to see that the layers of political power in the US are hard to break through without a huge majority, something which most people predict whoever wins will be unlikely to have. Trump touts himself as Mr America, so a victory for him may be good news for domestically focused US stocks, good news for big business and financials as he may seek to relax regulation and potentially good news for energy stocks as he seeks a self sufficient US economy. The major threat of a Trump victory at this stage is to foreign policy and foreign trade. It wouldn’t be hard to foresee tension between America and other global leaders should the rules of the trade game be changed.
The market reaction to the outcome of the US election is likely to be far less extreme than we saw post Brexit. The nature of the US system means that although an election takes place in November, any new leader has to wait until the New Year to take power. That will give the market time to take stock and work out who the winners and losers will be. Most important to remember though is that a Trump victory may be the anti-establishment vote, but unless he wins with a significant majority, he will struggle to pass policy against the Democrats and against swathes of his own Republican Party, who have been alienated throughout his campaign.
Change brings uncertainty, but in the case of America, the threat to markets may actually be far worse than the reality which ensues.