Analysts have warned that equity investors should brace for uncertainty if Donald Trump succeeds in his bid for the White House, while investments may potentially rally with relief under the announcement of a Hillary Clinton administration.
Analysts expect increased market volatility under a Trump presidency, noting the two go hand in hand “almost by definition”.
Investors may also have cause to be nervous under a president Clinton as she would aim to raise taxes, increase the estate tax and change the holding period on capital gains – but these measures would be unlikely to make it through the House.
But if Donald Trump wins the election come 8 November, markets will have to prepare for “uncertainty”, Cowen Washington research strategist Chris Krueger told CNBC the morning after the second US Presidential debate.
“Well the market doesn’t like uncertainty. With Trump that is what you get almost by definition,” he said.
Trump could “unlock” the American tax code with a Republican-led House and Senate behind him and impose a 45% tariff of Chinese imports from his first day in the White House, he added. Trump has also proposed a 35% tariff on imports from Mexico.
The outcome of the election will not be detrimental to all stocks however. Greg Valliere, Chief Investment Officer for Horizon Investments, said that regardless of who wins, business tax could be lowered, which would have a big effect on pharmaceutical and tech stocks.
The tech-focused PowerShares QQQ Trust Series 1 (NASDAQ: QQQ) is up more than 5.5% since 1 January. For sterling-based investors, the PowerShares EQQQ Nasdaq-100 UCITS ETF (LSE: EQQQ) is up over 27% year to date.
One ETF that invests in American health care is the $109m Source Health Care S&P US Sector UCITS ETF (LSE: XLVS), which is down 2.7% year to date in USD terms. The fund tracks 57 companies, with top holding Johnson & Johnson making up almost 12% of the fund. It costs 0.30% per year. Another option is the $132m SPDR US Health Care Select Sector UCITS ETF (LSE: SXLV). It is down 2.5% year to date and costs just 0.15%.
US equity ETFs did not make any dramatic moves following the second US presidential debate on 9 October, showing that neither Clinton nor Trump was the clear winner.
“I don’t think she knocked him out because the market would be indicating a lot higher,” Dan Veru, chief investment officer at Palisade Capital Management, told CNBC.
The relatively flat market reaction provided a strong contrast to the first debate on 26 September, when equity and currency markets – particularly Mexican equities – perceived that Clinton had won the first battle.
One of the clearest market moves on Sunday was the Mexican peso, often perceived as a proxy on the market view of the election, which traded approximately 2% stronger than the US dollar during the debate.
The iShares MSCI Mexico Capped UCITS ETF (LSE: CMXC) was up 2.6% the day after the second debate. Relations between Mexico and the US have been tense due to anticipation that Trump could win the election and build a wall on the border, as well as renegotiate trade deals.
Despite a perceived “draw” in the second debate, polls are increasingly showing Clinton with a wider lead. A NBC News/Wall Street Journal poll – of 500 voters surveyed between 8 and 9 October – gave Clinton a 14-point lead over Trump in a two-way race, up from a seven-point lead the previous month.
Valliere said the markets will continue to look for certain behaviours from each candidate in the next four weeks. If fresh news about Trump’s taxes and treatment of women hits the headlines, this may possibly sway voters further towards his rival.
There is one more presidential debate scheduled for 19 October.