Trump v Clinton – Different Outcomes for Investors

There’s a strong case to be made that stocks don’t really care who’s president. Unlike people, who have complex, pliable emotions, they can’t root for a political home team. All they can do is react to economic inputs that may or may not have anything to do with the actions or inactions of the current occupant of the White House.

The strongest correlation between candidates’ promises and actual market movements might come in the wake of the three presidential debates, all of which occur within two months prior to Election Day.

One perspective is that stocks are inherently unbiased, but that they’re nevertheless susceptible to short-term movements — especially when the debate outcome is unexpected. That’s the position of Fisher Investments on the presidential debates, for instance. Another perspective, held by Waldron Private Wealth,is that it’s simply difficult to ascribe correlation between candidates’ pronouncements and specific economic outcomes.

Do Candidates’ Policies Shape Economic Outcomes?

Let’s set objective truth aside for a moment, as politicians are wont to do. Do candidates’ policies really shape economic outcomes? Can they?

The short answers are “yes” and “yes”—but the moves are usually short-term. Presidential candidates, especially when they’re leading in the polls, can move markets simply by introducing a new and unexpected economic policy platform. For instance, a front runner’s sudden announcement that she’ll push for a tripling of the long-term capital gains tax would send shockwaves through the market.

Of course, were it not carefully telegraphed and paired with a coherent set of complementary positions, a proposed tripling of the capital gains tax would likely be political suicide — which is why presidential candidates generally don’t run around making drastic economic proposals on the fly.

Clinton vs. Trump: Who’s Better for the Stock Market?

Fortunately for financial and political pundits, presidential candidates are usually savvy enough to speak in softer tones. That doesn’t mean their words carry no weight with investors, though.

Hillary Clinton and Donald Trump have outlined very different economic policies. Here’s a look at how each candidate’s vision could move markets during the next four years.

Donald Trump

Last fall, The Street took an impartial look at how the economy — and the stock market — might fare under President Trump. The highlights:

• Immigration enforcement: According to an impartial analysis, Trump’s plans to strictly enforce existing immigration laws would immediately reduce real GDP by $1.6 trillion and cost the federal government up to $600 billion in lost revenues. A stock market crash would undoubtedly result.
• Industry-specific carnage: Trump’s policies would likely harm agricultural firms and tech companies that rely heavily on immigrant labor. Those sectors’ stocks would likely fall, at least temporarily.
• Budget deficits: Trump’s tax plan would dramatically increase the national debt, which many economists argue is already at unsustainable levels. It would also raise the annual budget deficit, putting immediate strain on the federal government’s ability to pay for essential services (and the workers who perform those services). Companies that do business with the federal government, particularly defense and infrastructure contractors, would take major — in some cases, fatal — revenue hits.

Hillary Clinton

Back in January, 2016,The Street took a similarly clear-eyed look at the potential market impacts of Hillary Clinton’s policies. Here’s what it found:

• Regulating Wall Street: Thanks to Bernie Sanders’ robust primary challenge, Clinton has pushed a populist message for much of the campaign. Her proposals to tax and regulate Wall Street are likely to crimp financial firms’ profits, hitting their stocks’ value (though probably not putting any major players out of business).
• Carried interest: Clinton’s wonky proposal to eliminate the carried-interest loophole could rob hedge funds and other big investors of billions in collective profit. The market impacts of this move are unclear, as it’s likely that investors would adjust over time.
• International trade: For all her protectionist rhetoric, Clinton has a long track record of support for free trade policies — most recently as Secretary of State. Companies that do business overseas (and their stock prices) would likely benefit under a Madame President Clinton.

The Verdict

So, which candidate is better for the stock market? It’s hard to sayand dangerous to predict. Many experts suspect that a Donald Trump presidency would be bad for the broader market, at least in the short term. That’s because, at present, the “smart money” expects him to lose. If he pulls off an upset, the resultant uncertainty could upend the market — similar to what happened following the surprise Brexit “leave” vote this summer.

On the other hand, the current economic expansion is reaching maturity, and a Clinton presidency that maintains the macroeconomic status quo could preside over a mild recession through no fault of its own. Since recessions tend to push stocks lower (or, rather, stocks tend to fall in anticipation of recessions), it’s possible that Clinton could be blamed for a bear market.

Either way, it’s going to be an exciting few weeks until Election Day — and a very interesting four years after that. Buckle up!