Trump vs. Clinton and The Financial Markets
By Bryan Ward, CFP® CIMA®
Before we get into what to expect from the post-election results, let us first just recap the past quarter.
- Markets quickly shrugged off the initial shock of BREXIT in the later part of June.
- Concerns of an interest rate hike diminished over the quarter as it appears the Fed does not want to do anything prior to election.
- China’s continued stimulus has helped stabilize the global economy, though the pace of growth continues to remain slow.
- With less concern over global data, the stronger dollar and other late-cycle dynamics, we saw non-U.S. equities and emerging markets out-perform our broader markets.
- We maintain our stance that the U.S. as well some other developed countries, are in a mature phase of the business cycle.
Source: Fidelity.com viewpoints 10/12/16
In just a few days, voters, especially in a few swing states will determine whether Donald Trump or Hillary Clinton will become the 45th president of the United States. I am not here to tell you my prediction, but to give insight on what we could possibly expect in the short term and long term depending on which candidate walks away the victor.
I personally believe that at the moment, monetary policy controlled by the central bank and the normal economic fundamentals should have a greater effect on the markets than who is elected president. Especially if there is bipartisan divide between the house and senate, making it challenging for anything to pass through Congress. This is not to say we can ignore other fiscal, tax, energy, health care and regulatory policies. It means that shy of a foreign crisis, neither candidate will be able to dramatically change the fundamentals that drive our broader markets overnight.
If Clinton Wins: Assuming the Republicans can at least maintain control of the House of Representatives, we expect that many of the domestic policies she ran on will not make it past first base. Though, we could see some activity on the regulatory and judicial fronts. But overall we expect continued slow growth, stalled labor participation and productivity.
If Trump Wins: I’m thinking Brexit all over again. The odds were that Britain would never leave the EU, yet when the vote passed, uncertainty of what that meant roared through the global markets in a sharp selloff that was short lived. Well the polls are currently against Trump as well and many people question how he will fare as commander and chief, and it is that uncertainty which we believe could make the markets nervous and therefore more volatile at least in the short term.
Tax Policy: This is one area that we could see an impact in the future which we are taking an interest in. Clinton’s proposal to add infrastructure spending along with international tax reform could see some push back in congress which induces tax increases to reduce the budget deficit. Trump’s proposal to enact extensive tax cuts while increasing infrastructure and military spending could give the economy that spark it needs to revive GDP and send the markets moving higher. Though, if it goes into effect and fails to generate the growth needed, America will be left with even a larger federal deficit and the ramifications that come with it.
Below is the comparison of each tax proposal: