–“I’m as mad as hell and I’m not going to take it anymore”–

The classic 1976 movie Network, written by Paddy Chayefsky, included this line from the now famous rant by the burned out newsman Howard Beale, one which captures the mood of the American electorate this year. Voters appear angry at establishment politicians and American elites, with that anger expressed through support of political outsiders. 

Donald Trump — a political outsider widely mocked prior to the GOP primaries — is the presumptive Republican nominee for President. Trump is waging a campaign that is more like reality-show The Apprentice than typical campaign: heavy with insults but light with facts and policy substance. Hillary Clinton has now mathematically sewn up the Democratic nomination, but is still contending with fierce opposition within her party from another outsider in the person of the self-described “democratic-socialist” Bernie Sanders.    

Current polls suggest that Clinton has the inside track to win the general election. However, Trump has overcome the conventional wisdom of ‘experts’ throughout this race, so it is premature to discount his chances to overcome the gap with Clinton. Despite the strong negative reaction by many to Trump, polls indicate that more than half the electorate have a negative impression of both candidates. Whether fair or not, current polls indicate a deep dissatisfaction with the leading candidates to be America’s next president.   

Observers looking for clues about how to understand this election may be better served by binge-watching Survivor, The Apprentice and The Real World and reviewing Facebook and Twitter trends than by listening to the ‘insiders’ who typically analyze political developments.

“I Don’t Know”

The character played by Sean Penn gave this deadpan answer to a teacher’s question in the 1982 movie Fast Times at Ridgemont High. Despite daily speculation about how President Trump would lead the country, I don’t think anyone (including the candidate) really knows how a Trump administration would work. 

Would Trump tone down his demeanor if elected, or would he insult world leaders, start trade wars and use the mechanisms of government to attack domestic critics?  Beyond Trump’s rhetoric, he’s offered little policy detail and few clues about how he would govern. 

Clinton has more of a track record to draw from, and several world leaders have publicly and privately expressed their comfort with her as the potential successor to President Obama. However, political analysts speculate about whether Clinton would tilt in favor of more liberal policy approaches to attract supporters of Bernie Sanders and Elizabeth Warren, or whether she would move toward the centrist approach adopted by Bill Clinton during his presidency.

Considerable uncertainty about how each candidate would govern is likely to remain, even after election results are in.  

Some policy direction is easier to anticipate – a Trump administration would take steps to reverse some or all of the Affordable Care Act, while a Clinton administration would be friendlier to a single-payer healthcare approach. Wall Street may be a target regardless of who wins – despite Trump and Clinton’s Wall Street ties.  Climate change is another distinct difference between candidates, with Clinton a visible friend to alternative energy interests and Trump a stated supporter of the coal industry.

Trump’s most extreme proposals on immigration, taxes, and trade can’t be implemented without Congressional action, given the limits to presidential power. Even if the Republican Party retains control over both houses of Congress, it’s unlikely that Trump will get his wall with Mexico or 45% tariffs on Chinese imports. 

However, I’m less complacent about the virtues of Washington “gridlock” than some analysts. Even if Congress was united against the president, the erosion of checks and balances against presidential powers leaves considerable room for policy mischief. A Trump administration would have considerable power – through executive orders and appointments of a Fed chair, judges and regulators.  

Investment Implications

Uncertainty about the election adds to the already long list of worries for the market. In my view, it isn’t time to hit the panic button, as we’ll be able to better assess the political implications for markets as we get closer to Election Day. 

The rise of Trump and continuing popularity of Sanders increases the perceived political risk for the U.S., presenting America with some of the challenges faced by several European countries in recent years. Investment implications include the likelihood that markets will be more volatile leading up to the election and potentially in the aftermath of the election.

The U.S., which politically has been something of a safe haven for investors, may become a little less of a safe haven as our “political risk advantage” potentially narrows against Europe and Japan. 

In this environment, advisors should focus on maintaining liquid, well-diversified portfolios, judiciously rebalancing portfolios when appropriate, and seeking opportunities created by market dislocations.

– Check out these ThinkAdvisor articles related to the 2016 presidential election:

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