"Glenn, talk me off the edge, but I am not liking what I see if _______ wins this. What if any are your thoughts?"
So read an email from a concerned client about the upcoming election. Another client asked me yesterday what I thought the impact will be of the election on our economy. My thoughts are as follows:
If Clinton wins, the expectation is a continuation of the status quo and what we have seen over the past 8 years with the Obama administration. If the Republicans retain the House, which is the current expectation, we have gridlock in Washington. Gridlock can be beneficial in that it keeps any one party from being unfettered in exercising their agenda. Over the past 65 years, a Democrat President and Republican House have historically been among the most positive political combinations for stock market returns.
Trump is certainly more of an unknown, and we know that the financial markets dislike uncertainty. If Trump were to win, I would not be surprised to see a "Brexit" type market reaction. We may see an initial shock in the markets, and then recovery and stabilization if things follow the same pattern.
Some longer-term implications of a Trump nomination (the underdog according to polls) include the possibility of a "tax holiday" for cash held abroad, which could boost the economy; the possibility of corporate tax reform, which would improve the U.S. as a place to do business (and could boost the economy, corporate profits, and stock prices); and the possibility of health care reform. A possible downside implication would be a trade war with China. I think we could still see a gridlock-type scenario in Washington if Trump were to win, as he would need the Senate's and House's buy-in on his agenda.
Of course, it is best to not let near-term concerns drive long-term investment strategy. In reality, our economy is doing better than people think, and the election is not going to change that.
Glenn S. Rank, CIMA®