TRADITION suggests that Wall Street should favour the Republican Party. America’s conservatives usually back low taxes, free trade and a reduction in regulation. But the 2016 election seems to be an exception. A Bank of America Merrill Lynch poll of fund managers in October found that a Republican victory was seen as one of the biggest risks facing financial markets, along with the disintegration of the EU.
A study* by Justin Wolfers of the University of Michigan and Eric Zitzewitz of Dartmouth College found that in the wake of the first debate, there was a six-percentage-point rise in the probability of a Hillary Clinton victory on betting markets. In reaction, stockmarkets rose, and gold and Treasury bonds (two assets that benefit when investors become risk-averse) fell. “Financial markets expect a generally healthier domestic and international economy under a President Clinton than under a President Trump,” the authors concluded.
What makes this election different for investors is the nature of the Republican candidate—Donald Trump is a long way from the party’s mainstream. A Trump victory would throw up all kinds of uncertainty...Continue reading
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