(Part one of three) Marco Pirondini is Head of Equities, US and Portfolio Manager of global equity strategies.
What would a Donald Trump victory or a Hillary Clinton victory mean for financial markets? In this first of a three-part series, Marco Pirondini, Head of Equities, US, shares his thoughts on the implications for US equities.
Do you expect volatility in US equity markets to rise as we approach Election Day?
Market volatility is likely to increase as we get closer to the election in November, not for any particular economic reason, but mostly due to tactical trading games by short-term investors.
How do you expect the market to react after the election?
Most market participants seem to be more comfortable with a Clinton win and more concerned if Trump emerges on top. A Trump win would represent change and be unpredictable, while a Clinton win, to a large degree, represents the status quo.
What are your views on the investment implications for a Clinton and Trump presidency?
The biggest difference between the two candidates may be that a Clinton presidency would mean higher taxes, more regulation and increased social spending which, overall, would be a drag on economic growth. The continuation of a low-growth and low-inflation environment would generally support investment approaches based on dividend yield, stable businesses and low volatility. On the other hand, Trump’s agenda, if enacted, would probably end up being inflationary and bearish for income-related investments.
A Trump victory would likely be favorable for cyclicals, but less favorable for interest-rate sensitive sectors such as utilities, staples and real estate.
How important will the outcome of the election be on US equities?
To paraphrase James Carville, former President Bill Clinton’s lead strategist, “it’s all about the earnings – stupid.” Corporate profits in the US have been under pressure for the past two years and have contracted modestly, making sustainable economic growth more difficult. Monitoring corporate profits will be paramount going forward. One positive is that the headwinds of a strong US dollar (USD) and the severe drop in the price of oil are behind us and the earnings recovery is picking up. Volatility and market corrections could offer interesting opportunities in US equities. On the other hand, nominal GDP growth, both in the US and globally, remains anemic. Therefore, a robust understanding of fiscal and economic policies is also important in determining the direction of the markets.