There’s one truism about the markets; they don’t like uncertainty. This year not only is a new President of the US being elected but, due to the fact present incumbent Barack Obama will have served his maximum two presidential terms, Americans will be voting for an all-new unproven President.
The two remaining candidates are former First Lady and Secretary of State Hilary Clinton on the Democrats side and business tycoon Donald Trump, who is throwing his hat into the ring for the Republicans.
Will an all-new president affect the markets?
Possibly. Investors will certainly be paying close attention to every word uttered by Hilary Clinton and Donald Trump as they run for election.
Policies from former presidents have been considered to have impacted on the American economy. Ronald Reagan’s tax cuts, Bill Clinton’s re-integration of commercial and investment banking and, more recently, Barack Obama’s healthcare reform are headline-grabbing measures that make big financial ripples.
As financial markets investment experts IG say: ‘successful trading means making the right decisions’. This is especially important during uncertain times.
The Standard and Poor Index (S&P) is a commonly used benchmark to show the performance of the overall US stock market through 500 carefully chosen companies. Historically it performs stronger in years two and three of the presidential four-year cycle (when the elected incumbent is well into their term) compared to their first year of office and the final year of their term – the run up to the next presidential election.
Will it matter whether the Republicans or Democrats win?
Probably yes – but it’s not just whether it’s a Republican or Democrat president. The Dow Jones Industrial Average (DJIA) has shown an average return of over 80% during Democratic terms compared to just over half – 45% – when the Republicans hold the reins of power. The key factor really affecting the averages is whether both the White House and Congress are controlled by the same party or not. Historically, a Republican Congress has tended to be good news for the stock market.
What about each candidate’s policies?
Both candidates seem to favour higher taxes and pricing curbs (primarily affecting the pharmaceutical industry’s drug pricing as Hilary Clinton’s ‘promise’ illustrates).
Key economic themes look like being defence spending (likely to be increased despite the US budget deficit), financial services reform and a general assault on pharmaceutical and biotech companies’ pricing if Hilary Clinton wins. The markets might be lukewarm to much of that, except perhaps those involved in defence, but much would depend on how Congress is made-up; Republicans, for example, are considered unlikely to support drug price reductions.
Then there’s the ‘Trump factor’. So far he’s been unafraid to speak his mind and offer some fairly controversial views. How these views crystalise into policies as polling day approaches will be key as to whether the markets are spooked or encouraged.
Uncertainty no more
In some respects the result, no matter which way it goes, is bound to bring an end to uncertainty. Even taxes and regulation needn’t have much difference if they are part of a President’s clear long-term vision for the country. It’s easy to build up the race a little too much. Drastic change is hard in a system of checks and balances and there are a great many other factors – oil prices, the Chinese economy, strength of the dollar – that are probably more decisive when it comes to market growth or decline overall.