Derek, how could the U.S. election impact the markets?
Although the U.S. presidential election is occurring outside of our borders, there is no doubt that the decision of the world’s largest economy will be important to the globe. While I won’t provide a political opinion on whom I think will be the best leader, generally speaking each candidate may move markets in different ways, and I can share that insight.
One of the most basic concepts to understand is that markets do not like a surprise and do not like change. The idea behind this broken down into simple terms is that the market is continuously attempting to determine what is known and what will be expected. When the unexpected occurs, prices on stocks can change rapidly as the new information is analyzed. A sudden move lower doesn’t mean that trend will continue, and we saw this already once this year with the Brexit vote. Investors didn’t expect the outcome of Brexit and global indices took a big move downward. However, most markets were back on track within a short time frame.
Said another way, a Clinton victory would likely keep the markets calm and moving in the direction that they are today. Furthermore, a continuation of party leadership would likely give more clarity to the investment community as far as what to expect moving forward.
A shift from leadership from Obama’s Democratic party to Trump’s Republican party would likely bring more volatility to the markets.
Beyond this, there is likely an expectation that Trump is a bit of a wildcard. No one is quite sure what he would do in the White House and his comments seem to support that. I’m not saying his policies would be bad, but I am furthering the point of how the markets do not like the unknown.
Currently investors have been anticipating a Clinton victory. This was evident after the Presidential Debate at the end of September when most media outlets confirmed that Clinton “won” the debate. U.S. markets were higher the following day as what is expected to happen seemed to be more likely to occur. Again, this is a situation where no change is good news because it’s more predictable.
Part of the reason that a successful candidate may impact the markets has to do with their policies. For example, a Trump victory could potentially be better for companies in the health care sector and financial sector. This is due to Trump’s expected policies which could be more favourable to companies operating in those business lines. Clinton, on the other hand, seems more favourable to the consumer discretionary sector and Industrial sector.
Looking at this further, a Clinton victory may mean more expanded trade and a more welcoming U.S. economy. This could then push forward trade as well as clothing sales, automotive sales, and tourism. Trump on the other hand may first appear less agreeable to foreign nations which may potentially reduce trade, although Trump would likely ease regulatory restrictions on health care, banking and insurance.
For the vast majority of investors, you may not need to do anything. I am an advocate of making long-term investment decisions rather than focusing on short-term events. There is no need to try to anticipate which way an election may change the markets as your focus should remain long-term and furthermore, any changes you make may in fact end up wrong.
A good wealth adviser can work with you to determine how your portfolio should be structured. With their advice you should gain a better understanding of your long-term objectives. In either case, it may be time to review your investment strategy and see if your long-term goals are still intact. In the meantime, enjoy the debates south of the border as I’m sure there is plenty more entertainment to come.
Happy investing,
Derek Fuchs, Senior Wealth Adviser
Scotia Wealth Management
Wealth Watch is written by Derek Fuchs, a wealth advisor with ScotiaMcLeod in Red Deer. It is provided for informational purposes only and any opinions contained in it are his own. Readers are urged to consult a wealth advisor for help with their personal investment circumstances. Fuchs can be contacted at derek.fuchs@scotiamcleod.com.