The 2016 presidential election campaign is rounding the bend and going into the final sprint to the finish line. This week is the Republican National Convention after which Donald Trump will be the official Republican presidential candidate. We have two thoughts about this. One is whether or not the stock market is a predictor of who gets elected and the other is what would a Trump presidency mean for stocks?
Stocks Predict the Winner
Bill Clinton is famous for having said, “It’s the economy, stupid,” in regard to how folks would vote in 1992. According to Bloomberg he might as we have said stocks instead of the economy. It turns out that the stock market has an enduring record of calling presidential races.
For an idea of how a presidential election will go, you could do a lot worse than look at the stock market.
It has a record of prescience that is hard to exaggerate. Since 1928, U.S. equities have correctly signaled who will win, incumbent or challenger, 19 out of 22 times, data compiled by Strategas Research Partners LLC and Bloomberg show. When stocks are higher in the months before a vote, the sitting party has won 86 percent of elections.
A higher stock market is a sign of optimism and a lower market is a sign of pessimism. Optimists like the party power and pessimists vote against them. Trump should be hoping for a bear market around September and lasting until election day. And what happens if “the Donald” gets elected?
A Trump Presidency and Stocks
NASDAQ has published an investor’s guide to a Donald Trump presidency.
Although it’s impossible to know who will win, many speculate that a Trump presidency would send the economy and stock market into a downward spiral. Experts are also drawing parallels between the audacious Trump campaign and the recent Brexit vote. His supporters, like leave voters, are tired with the status quo and would do anything to see that change. If the offbeat republican happens to win the White House, there are few themes investors should watch.
They believe that construction and materials companies would prosper if the famed wall on the border with Mexico is built and more so if Trump were to follow through with investments in infrastructure. Multinationals would be hurt if Trump nixed trade deals and does not follow through with the Trans Pacific Partnership. Global companies like Amazon and Walmart would be hurt. And meanwhile defense and security stocks would do well if Trump’s wish to make gun permits valid throughout the nation and increase defense spending. The agricultural sector would be hurt if all migrant workers without papers were sent back to Mexico and points south. But lower corporate taxes would be a relief to multinationals who might be persuaded to bring their profits back home.
What if Trump becomes president but the Democrats control the senate and hostile Republicans control the House of Representatives? That might be a recipe for a dysfunctional government worse than that which we have seen.