We are coming to the end of what has been arguably the bitterest, most unpredictable election campaign in modern history, one beset with scandal, in which normal discourse has been drowned out by bombastic, offensive statements and everything we know about how a presidential candidate should act has been challenged.
With polls now tighter than they have been for some time, the uncertainty around who will emerge as the most powerful human being on the planet come November 9th is enough to cause some degree of turmoil in the markets anyway, although the certainty that both candidates have serious credibility issues may at least provide some balance.
This uncertainty around the outcome of the election has already caused investors to start rethinking their long-held bets of a Nov. 8 victory for Democratic candidate Hillary Clinton, deepening the recent decline across major stock markets. But what about after the election? Russ Koesterich, CFA, head of asset allocation for BlackRock’s global allocation team, notes that, ‘Historically, whether a Republican or Democrat occupies the White House has had no statistically significant impact on US equity markets.’ Most economists see little difference, put any deviations down to market volatility and external circumstances. Chase's Anthony Chan argued there is a slight difference, telling CNBC that, the stock market tends to perform better in the November and December of an election year when a Republican wins the White House, arguing that: ‘I’ve looked at presidential elections all the way back to 1932. So you do see some differences between November and December across presidential election cycles.’ This, however, is no ordinary election, with no ordinary candidates.
Clinton, as the establishment candidate, would likely have the more calming effect, although the return of the FBI’s investigation into her emails does not lend itself to a stable presidency. Trump, as the anti-establishment wildcard, has said many things and could feasibly do anything. If he painted the White House gold, you’d be hard pressed to find anyone especially shocked. He promises to boost US growth immediately to 4%-5%, but with no evidence to back up his claims, and indeed most economists believe the figures are pure fantasy and his protectionist positions would actually achieve the opposite. University of Michigan economist Justin Wolfers warned that a victory for the Republican candidate could result in US, British and Asian stock markets plummeting by 10-15%, Forecasting firm Macroeconomic Advisers, which has also been tracking the correlation between Trump’s election odds and market movements, has warned that a Trump victory could cause stocks to drop by 8%.
Trump’s aggressive statements around international trade are not just a concern for the US either, the Asian markets are already twitching, with his focus being primarily on re-establishing the US’s domination over China. Asian equities slumped last Wednesday following polls showing Trump overtaking Clinton because of fears about future US economic policy, and these are unlikely to go away if he wins.
Some believe that the markets simply couldn’t deal with another surprise after the Brexit vote earlier in the year, with growth and employment around the world still looking fragile. As we saw in the UK’s EU referendum, most voters couldn’t really care less about the stock market. In fact, many see it as a chance to kick investors in the teeth, not realizing that they’re in turn kicking themselves in the teeth. Should investors be surprised by next week’s electoral outcome, whether that be via a shock Trump victory, you would have to assume that some short-term volatility will ensue. How long this lasts is another question entirely.