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Market impact of US election results

Oct 21, 2016
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October 22, 2016

It is time to prepare for the increased volatility in financial markets which will results as we approach and go through the US elections. A rise in volatility these days implies a higher USD, higher JPY, and higher Gold. The biggest impact on the markets will be on the day of the election results as the polls and actual vote count start to trickle in. Here is our assessment how markets might react depending on who wins.

Please note that these are not long term predictions. Only a possible scenario as to what might happen on the day of elections and how then the future might transpire. In real life one has to act according to the unfolding of actual events.

These observations should not in any way be construed as advice.

Market Hillary Clinton Donald Trump Possible reasons
US Dollar Up Down Trump is anti-trade and fears of inducing a global recession will result in a weaker dollar.
US Dollar Unchanged – Largely continuing with current economic policy Up – US Jobs are more expensive compared with jobs in developing countries. This should result in inflation.Inflation itself is not generally good for a currency. But in the first instance, US rates will rise faster and that could be dollar positive Bringing back manufacturing to US would reduce trade deficit and cause dollar to rise. But a rising US dollar will cause havoc in the emerging markets, which will lead to lower global growth and impact exporting economies such as Japan, Germany
US Dollar Unchanged Down – If Mexicans are made poorer by tariffs, they will buy fewer American good, implying a lower USD. A weaker Peso will mean that they can afford to buy less also. Bringing jobs back will mean that US exports are more expensive and US trade will suffer.
Interest rates Up – Current fiscal measures should deliver Federal Reserve’s Target of 2% inflation. It could overshoot. Up – Donald’s proposed policies seem to be inflationary. Sell off in US Bonds.Lower home prices.More defaults on loans and mortgages. But these could be offset by higher wages
Stock Markets Up – Relief rally Down – Uncertainty
Stock Markets Unchanged – More of the same Up Inflation takes time to build up. A lower USD usually means higher stock market values as it makes the economy more competitive in due course, while making the citizens relatively poorer as one can see in the UK
Commodities Higher – Stable US economy, steady global growth should lead to higher commodity prices as policy shift are also taking place in Europe from austerity to investment Mixed – Lower growth in Emerging Markets may lead to reduced demand for commodities Inflation is good for commodity prices. Lower USD is good for commodities
Gold Steady to higher Mixed – Higher rates could imply that Gold prices fall as investors shift to yielding assets Lower –  USD is good for Gold
Gold Steady to higher Much higher Gold rises in time of increased tensions and market volatility. Donald Trump’s victory may end up being a very big shock indeed.It is possible that the dollar may end up being higher and Gold prices are also higher. This is unlikely, but possible.
Oil Steady to long term lower Down – Donald want cheap energy and domestic production irrespective of environmental impacts Donald doesn’t care about CO2. Thus more coal, more fracking, more domestic production will mean over capacity
Renewables Up – Hillary is an environmentalist Down – Donald has no clue about impact of climate change The future of mankind has to compete with the present for Donald Trump. The future needs to be subsidized when it comes to Climate Change
Emerging Markets Steady to higher Down Donald Trump hates foreigners, particularly Latino’s, Indians, Chinese. The United States remains the largest economy in the world. His victory will send shock waves
Russia Unchanged Up Putin will at last have a friend. Russian Ruble and Russian equities should do well.
Indian Software Unchanged Down Implications for Indian workers due to Visa restrictions and Donald’s stance on bringing  jobs back will slow down projected growth
Nuclear Energy Unchanged Up Donald will make the world much less stable as more countries will be encouraged to have nuclear weapons
Defense Sector Unchanged to higher – Hillary is more assertive in foreign interventions compared with Obama Down – US defense industry may suffer if America is no longer acting as the Policeman If America is not needed to provide global security, other nations will take up the vacuum created. China, India, Germany, Japan will spend more

 

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