Clinton, Trump and the markets

Michael Zienchuk, MBA, CIM
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group

The first Clinton-Trump televised Presidential debate occurred on Monday, September 26, which had a record viewing audience of over 85 million.  Global experts are trying to gauge the impact of each potential presidency on stock and commodity markets. Market pundits perceive that the Federal Reserve has mostly played out its ability to impact the market as it looks for the opportune moment to raise rates, which it didn’t take at its September 2016 meeting, leaving only the December meeting, after the Presidential election, as its last opportunity in 2016. Whoever becomes the next President of the United States, will not be able to seriously affect the US economy by December and the rate may go up in any case. But the increase will likely be a one and done if the US economy remain anemic. The US GDP in the second quarter 2016 grew by a meager 1.1% annual rate (the expectations were at 1.2%) while only 151,000 jobs were created in August as compared to 180,000 expected.

The not-so-strong American economy was not the only reason why the Fed delayed the rate hike at its meeting September 21^st. Another reason may be a political one – the Fed does not want to make significant moves ahead of the Presidential election on November 8. Strategist Michael Harris (via CNBC) even suggested recently that the Federal Reserve Chair Janet Yellen is afraid of Donald Trump who has accused the Fed of keeping interest rates low because of political pressure from the Obama administration.

Although not affecting the U.S. economy directly, the two leading presidential candidates may have a very profound and opposite effects on U.S. and possibly global stock markets, depending on who is elected President of the United States. For example, if Hillary Clinton wins the Presidency, the overall stock market appears to be setting up for a rally in support of a perceived more stable fiscal policy course; a continuation of the Obama administration.  However, some sectors may not participate, such as big pharma, which Clinton has repeatedly attacked recently for price gouging and profiteering.

If Donald Trump wins the Presidency, it may adversely affect the whole American stock market, as he has picked fights with so many stakeholders that influence market tone.  Trump is seen as a potentially radical element and has criticized Wall Street, while also suggesting that interest rates need to be higher.  He has also attacked corporate America, targeting Ford Motor Co. as being “un-American”. During the debate on September 26^th Trump stated that the market is "in a big, fat, ugly bubble." 

It is not surprising then that the markets took the perceived Hillary Clinton’s victory in the debate on September 26 optimistically. S&P 500 futures rose just over 16 points over the course of the debate. The morning after the debate, the Mexican peso increased by more than 2% against the U.S. dollar, and kept growing for several days in a row (see the chart). Before the debate, the peso had declined against the U.S. dollar as Donald Trump’s chances to be elected were increasing. Trump has repeatedly threatened to renegotiate, if elected, the North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada, suggesting it is the worst trade deal ever. He also wants to build a wall between Mexico and the U.S.

The general trend in the stock market immediately after the debate was an upward one. Hillary’s perceived victory may have provided some basis for this strength. Time will tell which candidate is the victor, as there still is several weeks of campaigning to go, and another debate, before the Americans go to the polls. 

Michael Zienchuk, MBA, CIM

Investment Advisor, Credential Securities Inc.

Manager, Wealth Strategies Group

Ukrainian Credit Union

416-763-5575 x204

mzienchuk@ukrainiancu.com

www.ukrainiancu.com

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