What election results will mean for markets
WHAT will happen to financial markets after the election?
We have a decent idea because there has been a swing in a variety of asset prices – especially the stock market and currencies – at inflection points in the race. A market rally on Monday is the latest evidence. The more than 2 percent gain in the S&P’s 500 appears to be linked to the announcementbyJamesComey, the FBI director, that an examination of newly discovered Hillary Clinton’s emails revealed nothing warranting charges.
Market swings over the course of the election suggest that people with money on the line view a world in which Clinton as president offering a less volatile environment than one with Donald Trump in charge.
Of course, markets often rise and fall for reasons that have nothing to do with the day’s biggest headlines. And if Monday’s rally were a one-time occurrence, it would be safer to attribute it to chance.
But in this election cycle, there has been a clear pattern of the odds shifting in the race and different financial indicators moving in a consistent direction. Good news for Clinton’s campaign has coincided with higher stock prices, a rally in the Mexican peso and a decline in expected stock mar- ket volatility. Good news for Trump has coincided with the reverse swings.
That movement was evident when audio emerged of Trump making vulgar comments about women. It went in the opposite direction when Comey indicated that investigators were examining newly obtained emails tied to Clinton.
Stock market analysts agree on the direction of the likely movements in the event of a Trump win, if not their magnitude. In a research note on Monday, Evercore ISI interpreted the evidence as signalling that a Trump win would create a drop of 5 to 6 percent in stocks, with a 2 percent gain if Clinton wins.
Even if estimates like those correctly predict the near-term market reaction, their ability to correctly judge the long-term consequences of a political shift for the economy isn’t particularly good. Complex feedback loops among political decisions, public policy and the economy aren’t always evident in the immediate aftermath.
A victory by Clinton would most likely signal continuity with President Obama’s policies and fewer radical shifts. But there, too, the details would ultimately shape the fate of markets, and some of those are unknowable, like whether she would find willing partners to enact pieces of her agenda or would face steadfast resistance from Congress.
In other words, think of the reaction on Wednesday as a response to one mystery being solved (who won) while another one is created (how that person will lead).