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Trump vs Clinton: The impact on markets

Date: Nov 07th, 2016

The United States (US) presidential election, on 8 November, between Republican candidate Donald Trump and Democratic candidate Hillary Clinton is a hotly contested race. More recently, we have seen some widening of opinion polls, however, this is a fluid and fast moving landscape and political uncertainty remains. We anticipate that the potential for increased market volatility over coming weeks is high.

This paper draws on the insights of AMP Capital’s investment teams to assess the risks and opportunities for individual asset classes from both possible outcomes, based on known policies. We accept that the details of some policies are not clear, and may not be clear for some time, particularly given that control of the two houses of Congress, as always, will be a key factor in determining which elements of a candidate’s policy platform ultimately becomes law.

Key points

  • Policy differences will have some specific asset class impacts. In general, however, the perception is that a Clinton victory represents continuation of the Democratic party status quo, and associated with this is the expectation of fewer policy surprises. The change to a Republican administration under Trump has the potential to result in more dramatic shifts in intended policies. Once again, the ability of either party to implement policy will be dependent on Congress.

  • US bond markets could weaken on a Trump victory, reflecting an expected increase in the budget deficit and allow the Fed to assume a more aggressive rate hike path than currently. This has the potential to push the USD higher. A Clinton victory is unlikely to point to a different path for interest rates than is currently priced into the market.

  • Both candidates seek to increase infrastructure spending, which is one of the few areas of spending agreement. For US listed infrastructure, particularly the energy and pipeline sector, neither of the candidates have plans that would be detrimental. A Trump victory may spark short-term share price gains.

  • For direct infrastructure, a key area to monitor is the view of each candidate on the use of private capital to fund the nation’s infrastructure development. However, this is currently unclear. Irrespective of the election outcome we don’t envisage any immediate changes to our deal flow or opportunity base.

  • In general a Clinton victory, assuming a Republican-controlled Congress, would likely result in more of a status-quo environment for US REITs. A Trump victory could see some sectors doing better, such as the office sector. Regardless of who wins, defence spending is almost certain to increase.

  • Historically, elections have been meaningful drivers of equity volatility. Looking back at all post-war elections (1948-2012), realised volatility is highest in October of an election year than any other month during election season (Jul-Nov). If history is our guide, increased volatility that causes increased trading volumes will likely precede the election rather than follow it. We do not foresee a lasting impact on liquidity of either the equity or fixed income markets as a result of the US election.

Read the full report here

Source: AMP Capital

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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