American voters are set to go to the polls tomorrow, with the contest tightening in recent days. The fight for the White House intensified further after the FBI’s announcement on the investigation related to Hillary Clinton’s emails appeared to affect her polling scores. The FBI effectively brought that fresh probe to a close last night, adding yet another twist to the election race in the last few furlongs.
While the controversial Mr Trump is widely seen to be the biggest threat to stability in the markets in the short term, David Absolon, Investment Director at Heartwood Investment Management, said there could be longer term benefits.
He said: “In the short term financial markets will probably react negatively, but over the longer term a Trump presidency could be a boon to US assets if his fiscal stimulus plans, which are meaningful, turn out to be a positive game changer for the US economy.
“On the other hand, Hillary Clinton is the establishment figure and with that association she brings stability. US markets are likely to respond favourably to her election in the short-term. If Clinton is able to convince a sceptical electorate that globalisation is a force for good, then this should have a lasting impact on the health of the global economy and financial markets. However, the path will be bumpy as Clinton will probably be reliant on a Republican controlled Congress, at least in the lower house.”
He added: “This is not just an election for the US, but one pivotal to the future shape of the global economy.”
Lars Kreckel, Global Equity Strategist, Asset Allocation, at Legal & General Investment Management, said a scenario whereby Hillary Clinton wins but has to govern without a majority in Congress could have the smallest market impact. This is partly because it is the most likely outcome and thus largely priced in, but also because it represents the status quo and would create little additional policy uncertainty, he said.
He said: “A Trump win would likely deliver the greatest market impact. Market moves in response to changes in Trump’s odds around the first debate and last week’s FBI story suggest a significant risk-off reaction with a hit to growth-sensitive assets.
“We would expect earnings to benefit from a Trump fiscal stimulus but this to be more than offset by a lower PE on the basis of significantly higher uncertainty. The fixed income reaction is less straightforward. Many of Trump’s policies could be inflationary (e.g. anti-trade, anti-immigration, fiscal stimulus) but in the short term, risk-off sentiment would likely prevail and push bond yields lower.”