If we assume that the financial markets operate under the principle of maximising returns at minimal risk, then it should surprise nobody that Hillary Clinton is Wall Street’s preferred candidate. However, this has less to do with ideology than the fact Mrs. Clinton is an establishment candidate whose pockets have been lined with Wall Street dough.
But what do the financial markets have to gain from a second Clinton in the White House?
Greater certainty
If there’s one thing the financial markets hate, it’s uncertainty. In an environment constantly pulled between fear and greed, uncertainty generally causes investors to navigate toward risk-aversion. This has all kinds of nasty side effects on the value of assets.
As we mentioned at the outset, Clinton is an establishment candidate who is less likely to rock the political boat. Wall Street knows the establishment type, and would much rather play ball with a candidate they know how to deal with.
No Donald Trump
In practical terms, a Hillary Clinton victory also means Donald Trump doesn’t make it to the White House. For Wall Street, who are predominantly in favour of a Clinton presidency, and the financial markets, this would be viewed as a very good thing. Do we need to take position on this?
Historically, markets love Democrats
Another cold hard fact about putting a Democrat in the White House is the market performs much better. Now, we’re not saying this is solely attributed to Democrats – after all, presidents spend a great deal of time dealing with the policies of past administrations. But if we look at average stock market returns under Democrats and Republicans, it’s no contest who the market prefers.
Since 1900, the Dow Jones Industrial Average has generated an average annual return of 7% under Democrats versus just 3% under Republicans. That’s a total of 19 presidents, so the sample size is fairly large.
But what about the downsides of a Clinton victory?
Pharmaceutical stocks
Clinton has made lowering prescription drug costs one of her biggest election issues, and has repeatedly lashed out at the absurd costs of prescription drugs. While this is certainly a noble effort, it has wreaked havoc on the healthcare sector in general and pharmaceutical industry in particular. One thing is clear: A Clinton presidency could be detrimental to pharmaceutical stocks. If you’re an investor, you may have to rethink your portfolio.
Let’s also not forget to mention that her plan for lowering drug costs has come under attack by the pharmaceutical industry. This could get ugly in a hurry.
Very hawkish
Hillary Clinton may become the first female president in US history, and although it may be easy to project the maternal stereotype on the 68-year old Clinton, she is widely considered to be a war hawk.
“Hillary the Hawk,” as she is sometimes called, has a woeful record when it comes to foreign policy. The Democratic hopeful voted in favour of the 2003 Iraq War, the 2009 Afghanistan surge, intervention in Libya to overthrow Muammar Gaddafi and arming rebels in their siege of Syria (the same rebels who would form part of ISIS) – and that’s only the tip of the iceberg. Another Clinton in the White House might not be good for the country’s finances.
Not a change agent
If there’s one thing Americans are craving, it’s change – serious change. And if significant change is what you’re looking for, Hillary is probably the wrong candidate. For investors, a lack of change probably equates to stability for a short while, until voters demand somebody much more radical. Another four years of status quo policies, doing Wall Street’s dirty work and preparing for a cushy retirement earning $250,000 for 20 minute talks could create a new appetite for change. Who knows what types of candidates that might produce in 2020 – but we have a sneaking suspicion that they could make Donald Trump and Bernie Sanders look like one of the guys.
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