US mar­kets on edge for more elec­tion sur­prises

The Myanmar Times - - International Business -

BOMB­SHELLS not­with­stand­ing, US stock mar­kets still see a vic­tory by Repub­li­can pres­i­den­tial can­di­date Don­ald Trump as the less likely out­come of the Novem­ber 8 vote, an­a­lysts say.

But if he does de­feat Hil­lary Clin­ton, the Demo­cratic nom­i­nee, as the lat­est polls which give him a nar­row 46-45 per­cent lead in­di­cate, the re­ac­tion could be dra­matic. What is less clear is whether that ini­tial post-vote mar­ket re­ac­tion will last.

MIT eco­nom­ics pro­fes­sor Si­mon John­son, for­mer chief econ­o­mist of the In­ter­na­tional Mon­e­tary Fund, says the re­ac­tion could be bru­tal, given the frag­ile state of the US and global eco­nomic re­cov­er­ies.

“A big ad­verse sur­prise – like the elec­tion of Don­ald Trump in the US – would cause the stock mar­ket to crash and plunge the world into re­ces­sion,” Mr John­son said in a col­umn.

“Trump prom­ises to boost US growth im­me­di­ately to 4-5pc, but this is pure fan­tasy. It is far more likely that his anti-trade poli­cies would cause a sharp slow­down, much like the Bri­tish are ex­pe­ri­enc­ing.”

Mr John­son warned that Mr Trump “would not need con­gres­sional ap­proval to slam the brakes on the US econ­omy”, and that would push Europe into re­ces­sion as well.

While he noted that in­vestors “re­gard a Trump pres­i­dency as a rel­a­tively low-prob­a­bil­ity event”, if they are wrong, he said, “we should ex­pect a likely crash in the broader mar­ket”.

This pres­i­den­tial cam­paign is far dif­fer­ent in tone than any in re­cent mem­ory, so po­lit­i­cal an­a­lysts who dis­missed the “Oc­to­ber sur­prise” ef­fect on US elec­tions as mostly myth may be eat­ing their words.

Twice in the past month sur­prise rev­e­la­tions have rocked the cam­paigns of the two can­di­dates, both times sharply mov­ing Wall Street – though in op­po­site ways.

The Dow gained 0.5pc the day fol­low­ing the re­lease of the record­ing of Mr Trump de­scrib­ing in vul­gar lan­guage his be­hav­iour to­ward women. Yet stocks fell back the very next day.

And the mar­ket fell sharply by 1 per­cent­age point on Oc­to­ber 28 on news the FBI is in­ves­ti­gat­ing a new trove of emails pos­si­bly tied to Ms Clin­ton’s use of a pri­vate email server while sec­re­tary of state.

With just six days left be­fore the key vote, some an­a­lysts warn of un­fore­see­able “black swan” events.

“We have warned through­out the cam­paign that black swan risks, in­clud­ing scan­dals and in­for­ma­tion war­fare, are ex­traor­di­nar­ily high, and hence have been less bullish for a Clin­ton vic­tory than con­sen­sus,” Citi Re­search an­a­lysts Tina Ford­ham and Tiia Le­hto wrote in a re­port.

“The ex­tent to which the 11th hour de­vel­op­ment will in­flu­ence voter be­hav­ior is likely to re­main un­cer­tain right up un­til Elec­tion Day.”

While they still see a 75pc prob­a­bil­ity of a Clin­ton vic­tory, the lat­est de­vel­op­ment cer­tainly will “fur­ther dent con­fi­dence”, the an­a­lysts added.

But, as was the case with the two Oc­to­ber sur­prises, there is am­ple re­search that stock mar­ket re­ac­tions fol­low­ing elec­tions do not last long and do not favour ei­ther party.

Black­Rock in­vest­ment strate­gist Russ Koes­terich wrote ear­lier this year that who wins the elec­tions does not re­ally mat­ter to stocks over time.

“His­tor­i­cally, whether a Repub­li­can or Demo­crat oc­cu­pies the White House has had no sig­nif­i­cant im­pact on US eq­uity mar­kets,” he said.

How­ever, he and other re­searchers see trends in­di­cat­ing stocks per­form bet­ter in the third year of an ad­min­is­tra­tion and worse in the first year.

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