Election 2016 and the Economy
Presidential elections are always momentous occasions, and both traders and investors need to pay close attention to what is going on. Presidents do not have a huge long term impact on the economy thanks to the fact that the more drastic and lasting changes made must go through the House and the Senate, but during election seasons, this is forgotten and wild swings can take place, especially if candidates have outspoken or radical views on the economy or a portion of it. That’s certainly the case this year, especially with Republican candidate Donald Trump and Democratic candidate Bernie Sanders.
Republicans have long been regarded as being favorable to Wall Street, but the last couple decades have started to erode this thought. However, the 2016 election looks like the erosion that took place under Presidents Clinton, Bush, and Obama is being reversed. Clinton helped boost Wall Street considerably until the tech bubble popped, Bush helped bring things back up until the financial crisis, and Obama’s term saw the Dow and the S&P 500 hit record high levels once again. But the Republican candidates are all supportive of a laissez-faire type economy, especially the front runners Ted Cruz and Donald Trump. This would allow businesses to do their thing with minimal government restriction, and when this happens, big business tends to grow quickly. This isn’t always the case, as we most recently saw in 2008, but that is the direction that history tends to go.
If a Republican wins the general election, the typical Wall Street response is to see a flurry of buying. If a Democrat wins, there is usually a large selloff. The Democrats have gone out of their way—perhaps because of 2008—to make this distinction far more pronounced than it has been in a very long time.
That’s why you should also be looking at the Democratic side of things, even if Republicans currently have the advantage in the major polls. Bernie Sanders has made it a point to not take money from large organizations—his average campaign donation is currently just $27. Also, he has made it a strong arguing point of his that his rival, Hillary Clinton, has many connections within Wall Street and is more of a supporter of big business. While this is intended to lump Clinton in with the Republicans running for president, it also makes the point that Sanders will not be going out of his way to help the businesses of the country in a substantial way. In truth, Hillary only accepted about $4 million of her more than $110 million in campaign donations in 2015 from financial organizations. The majority of her big donations have come from large law firms, and not the finance industry. However, this is not the perception that the public has of her right now. For this reason, Clinton has been postponing speaking arrangements with major financial companies.
And while history tells us that Republicans are pro-big business and Democrats are pro-little guy, this election is truly looking like it doesn’t adhere to the old models. Candidates need to be taken on a case by case basis. Their stance on the economy and on business is important, and in the days leading up to the election, and the days after, who the frontrunner, and then the winner, is, will have a strong influence on what the major U.S. based indices do. As other factors also influence prices, too much bad news could spin prices down quickly, creating a situation where stocks are undervalued. If this happens, taking long term long positions, especially those that revolve around indices, like long term binary options and ETFs, can be lucrative. Either way, short term traders should look to be quite busy come November.