Hillary Clinton email issues resurface, Trump moves up in the polls and stock markets slide across the globe. How would a Trump presidency affect the stock market? Donald Trump in the White House would hurt stocks if the market is to be believed. Reuters reports that the dollar and stocks are down on U.S. election worries.
Global equity prices and the dollar slid for the second straight day on Wednesday, while safe-haven assets such as gold rallied as investors were rattled by signs the U.S. presidential race was tightening just days before the vote.
Uncertainty about the outcome of the election pushed U.S. Treasury yields to their lowest in a week, while crude oil extended losses after U.S. government data showed a much bigger-than-expected build in inventories.
Investors were beginning to rethink their long-held bets of a Nov. 8 victory for Democratic candidate Hillary Clinton amid signs her Republican rival Donald Trump could be closing the gap, deepening the recent decline across major stock markets.
As we have often repeated, the market likes predictability and Clinton is much more of a known entity than Trump. While some estimates have the market up 11% if Clinton is elected there appears to be a good chance of a falling market if her opponent makes it into the White House.
What if Trump Wins?
The New York Times looks at what happens to markets in case of a Trump victory.
The conventional wisdom is that, right off the bat, the stock market would fall precipitously. Simon Johnson, the Massachusetts Institute of Technology economist, posited that Mr. Trump’s presidency would “likely cause the stock market to crash and plunge the world into recession.” He predicted that Mr. Trump’s “anti-trade policies would cause a sharp slowdown, much like the British are experiencing” after their vote to exit the European Union.
In explaining his prediction, Professor Johnson wrote that Europe’s economy is so fragile that “Trump’s trade-led recession would tip Europe back into full-blown recession, which would likely precipitate a serious banking crisis.” After that, he continued: “If this risk were not contained – and the probability of a European banking debacle is already disconcertingly high – there would be a further negative spiral. Either way, the effects on emerging markets and all lower-income countries would be dramatic.”
Some may consider this opinion excessive but the market does, in fact, fall each time that Trump advances in the polls. The knee jerk reaction to Trump winning would probably be a broad scale selloff followed by mini rallies in selected stocks. For more ideas on what stocks to buy or get out of in case of a Clinton or Trump victory take a look at our recent articles.
An important fact for investors to remember is that many things in the world economy are not immediately dependent on the results of the U.S. election. For example, the Chinese economic slowdown and Europe still flirting with recession are problems in and of themselves, although each could be affected by economic disaster in the U.S.A. Smart investors will do a little homework before Election Day and consider how intrinsic value of each stock in their portfolio will fare given either of the potential victors.
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