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November 07, 2016 at 09:23 AM
As voters send in their ballots by mail and prepare to go to the polls on Tuesday, equity and other market strategists are sharing their views on what might happen as the results get reported.
Many of them tend to see Hillary Clinton as the more predictable of the two candidates. Thus, if she wins, stocks could rise, and investments that are seen as safe havens – like gold – could weaken.
On the flipside, a Donald Trump win would have the opposite effect, many of them argue.
Here’s a look at what several investment groups are saying about what lies ahead:
1. ETF Securities
“Historically, when the incumbent party remains in the oval office, the S&P 500 index has steadily risen approximately 5% on average,” ETF Securities said Friday. (It looked at 22 elections since 1928.)
“When there is a change in political party, however, selloffs in equities have occurred in the weeks leading up to the election as well as several weeks after the vote,” the group explained.
Overall, U.S. equities tend to be “much more volatile” when there is change in the White House.
As for precious metals, ETF Securities says gold prices might rise by as much as 10% if Trump wins the race for the White House. Gold “could lose up to 6% if Hillary Clinton becomes the country’s first female present,” it adds.
“On average, in the 12 months following a presidential election, gold has risen 10% when there was a change in the political party versus approximately 3% when the incumbent party remained,” ETF Securities stated.
As for the broad economic and specific sector effects of the outcome, “Both candidates have put infrastructure spending as a top focus to help spur the U.S. economy, particularly when the impact of monetary stimulus appears diminishing,” the group explained.
More spending on infrastructure could lead to higher imports and demand for copper, steel, cement, aluminum, petroleum and other industrial commodities. Such a move would boost U.S. manufacturing, materials, transports and energy sectors.
“Additionally, the U.S. labor market could benefit by not only improving the labor participation rate, which has been in structural decline for several decades, but also by creating new jobs in these industries helping drive domestic demand, consumer spending, and inflationary pressures,” ETF Securities added.
If either candidate, once elected, were to embrace more protectionist policies, global trade and investment could be restrained, which would likely “exacerbate global currency volatility, in turn contributing to further investor uncertainty and boosting demand for defensive and safe haven assets such as cash, bonds, and precious metals,” according to the group.
2. Citi
“The tail risks of a Trump victory or a Democratic ‘sweep’ could result in a market correction in the 5 percent range (similar to Brexit), after which the investment community reassess the environment,” Chief U.S. Equity Strategist Tobias Levkovich said in a Nov. 3 note.
