With the presidential election still close after Sunday night’s second presidential debate, investors should prepare for different reactions from the markets depending upon which candidate prevails, said Greg Valliere, chief investment officer for Horizon Investments.
(Valliere will be sharing his political wisdom on Oct. 27 during the Schwab Impact conference in San Diego.)
While the second debate was full of personal barbs, there’s no doubt “fresh revelations” will emerge before the final debate on Oct. 19, Valliere said. “We expect more bombshells, ranging from Trump’s taxes to his treatment of women, and surely there will be more hacked emails from WikiLeaks,” he noted in his Monday morning commentary. “Plenty of fodder for a knife fight in the final debate.”
Indeed, Valliere said during a Friday webcast hosted by Horizon that the markets will look for certain behaviors from each candidate, adding that rumors say The New York Times will dribble out more information about Trump’s taxes.
If Trump wins, “I’m looking to see if he tones it down with a trade war with China; does he indicate that he’s willing to negotiate; not slap big tariffs on?” Valliere said during the webcast. “And I’m really interested to see if he would offer an olive branch to Janet Yellen. His criticism of her has been quite personal and quite strident. So the markets would look for those two things if he wins.”
If Clinton were to win, “I think the markets would look to her and say, ‘Is she going to immediately sit down with [House Leader] Paul Ryan and [Senate Leader] Mitch McConnell—with the leading Republicans? Will she try to offer an olive branch to them?”
Investors are “nervous” that Clinton would “carry out her promise to raise taxes, to increase the estate tax; to change the holding period on capital gains,” he continued, but “none of this would ever make it into law. It would die in the House.”
The “easiest call by far” for the fall is that the House stays Republican, while the Senate is “a close call” and could flip back to the Democrats.