US presidential elections have always captured the world’s attention, but this year’s election has become a global soap opera thanks to the intense media coverage and bitter tone of the campaign. The polarizing candidates will take the discussion of where America should be headed to a new level: the Democratic candidate, Hillary Clinton, under the slogan “Stronger Together”, will likely maintain the course established under the Obama administration, while the Republican candidate, Donald Trump, is pledging to “Make America Great Again”, indicating that fundamental change would be his course of action.
This paper reflects our view today, discusses recent polls, current dynamics, long-term themes, and addresses impacts for investors.
Our View Today
- Though this year's election is a contentious and dramatic affair, we should be careful not to overstate the importance of the presidential election on markets and the economy in the short term.
- The President is highly constrained on domestic policy, due to constitutional checks and balances.
- Both candidates are likely to face difficulty in getting their stated agendas through a polarized Congress.
- A Clinton victory would likely be neutral for equity markets, particularly since the market has largely priced in this outcome.
- A victory for Trump would create volatility and downside risk due to uncertainty over his policies.
- Both candidates have made promises of greater fiscal stimulus, which would be a positive for the US economy.
- Both candidates have indicated an intention to increase trade restrictions to protect American workers, which would be a negative for business and markets in general.
- We do not believe most investors should take significant portfolio actions in advance of the election.
- The election is one factor in a range of variables and events that will impact the market direction over the next few months and into the coming year.
- Ultimately, it’s difficult to predict how the market might respond. As the aftermath of Brexit has shown, any response can reverse quickly, making it difficult to monetize any single event.
- For a longer-term view, the trend toward populism both in the US and overseas is a concern.
- However, ineffective fiscal policies financed through deficit spending paired with trade restrictions run the risk of creating a low-growth, higher-inflation environment (stagflation).
Impact for Investors
The election is one of many factors that could impact the direction of markets over the next few months and beyond. Investors should avoid making portfolio changes based primarily on potential election outcomes as it’s difficult to predict how the market might respond.