As the manager of a mutual fund focused on U.S. companies, I’ve been asked a lot recently about the upcoming U.S. election. The main question from investors, of course, is: What will be the impact of a Clinton/Trump win on the companies and sectors we hold in the fund? My short answer – very little, if any, impact.
I am a bottom-up investor and the fund is built on a company-by-company basis. We run a diversified portfolio focused on longer-term outcomes – this, by design, makes short-term market disturbances less of a concern for us than for those investors looking a year or 18 months out. That said, an additional reason for believing that the impact will be minimal is that, in my experience, the stock market implications of elections tend to be short-lived and mild.
Post-election market reaction
While candidates that are perceived as “pro-business” tend to be received more positively by markets, market movements around election results usually aren’t particularly dramatic. Election campaigns tend to inspire theatrical pronouncements, but once elected we often see things change. Kennedy was thought of as left wing, but then he cut taxes. Reagan was a bit eccentric, but he brought in pro-business policies and the economy took off. Bill Clinton shifted his policies in his second term and the economy responded positively. If history has taught us anything, it’s that over time politicians tend to recognize the value of a strong business environment.
A Trump victory is certainly not out of the realm of possibility, but it appears that a Clinton win is widely expected. Because of this assumption, there would likely be some disruption and volatility in the short-run should Trump win. Trump is most definitely a wild card, to put it mildly. But, if we assume that both Congress and the Senate remain Republican and he puts together a solid cabinet with respected experts in various areas, overall, I believe that overall a Trump presidency would be well-regarded by investors and market participants. In the grand scheme of things, I believe his policies around taxation and regulation are, ultimately, good for business.
On the Clinton side, I believe she is promoting her more left-leaning policies in an attempt to build out that spectrum of her following as the campaign comes to a close, but if elected, I feel confident that her actions will shift back toward the centre of the political spectrum and her views will be tempered by the checks and balances imposed by Congress and the Senate. And of course, with any candidate, ideas discussed during election campaigns don’t always turn into policies once elected.
What about trade?
Trade is a hot-button issue with the American people. Some of the current trade deals are simply not well-structured and many believe them to put Americans at a disadvantage – in relation to tax regimes, regulation and so on. I think there is room for substantial changes without formally overturning any of the treaties.
Increased collaboration would position countries more as equal traders, which would allow them to play to their comparative advantage without using regulatory gimmicks to disadvantage the other side. To the extent that these impediments are in the way, I think they should be addressed and ultimately, I believe this is the direction the U.S. will head in regardless of which candidate wins.
Unfortunately, these issues are so complex that neither the media nor the politicians provide the full story, so we’re left with this nonsensical framework that they appear to be operating within. The real situation is much more complex and nuanced than what we’re hearing right now around trade – and the continuation of relatively free trade is vital in terms of global prosperity.
Beyond the potential for minor headline risk related to the unpredictable nature of the Trump campaign, I don’t have concerns about anything untoward happening over the next four to five years. As is common during elections, I believe that the policies we’re likely to see from either candidate, should they win, will be far less extreme than the rhetoric we’ve heard during the election cycle. Congress and the Senate are there for a reason – and historically, those checks and balances have functioned as they should. If we had seen some kind of outlier in terms of policy that could dramatically impact an entire sector, we may have made moves, but I don’t see any cause for concern in that regard.