Hi I am Arjun Parthasarathy speaking and this podcast is on “Post US Election Rally Like Post Brexit Rally?”
Everyone (well almost everyone!) expected Brexit not to happen but Brexit happened. Everyone expected markets to fall if Brexit happened but markets rallied. Global equities rose and bond yields fell post Brexit. Equity and bond markets had seen some weakness pre Brexit as markets positioned for uncertainty despite expecting no Brexit.
Going into US Presidential Elections, markets are nervous with equities shedding gains and bond yields rising. However broad market expectation is that the Democrat Nominee, Hillary Clinton will win the election defeating the Republican nominee Donald Trump. Markets want Hillary Clinton to win just like they did not want Brexit to happen.
What if Donald Trump wins the election? Broad consensus is that markets will fall heavily as Trump is seen as highly volatile in temperament that will feed into unsound policies for the economy. The question is, will markets fall if Trump wins? Or will markets surprise everyone and rally like Brexit rally?
Given that markets have shed value pre elections, markets are discounting a not so ideal result. If Trump emerges victor, it is not as if the whole of the US economic policies will change overnight. Also, the US economy is largely driven by private enterprise with consumers forming the backbone of the economy. US unemployment rate at 5% is at close to peak employment in the economy going by long term averages and a Trump victory is unlikely to make businesses retrench unless there is an on the ground slow down in demand.
The Fed will in all probability stick to its December rate hike plan irrespective of election outcome as the Fed looks at economic data, which is positive, rather than potential policies of a newly elected president.
There is also a feeling among the US public that Trump rhetoric pre election on various issues will not be followed up by post election action. The Republican Party is also seen as pro business and pro Wall Street and Trump represents the party.
On the other hand, if Hillary Clinton wins the elections, markets will see this as business as usual as she will follow Obama’s path on the economy.
In either case, markets may just go into a post election rally, just like a post Brexit rally.
Join our growing list of subscribers who have benefitted from our sound advice and from our focus on knowledge. Why delay, get your savings growing. Join our Online Advisory Service. Please call Neelima at +919819770641 or log in to investorsareidiots.com or download investorsareidiots App for Android or IOS to subscribe. Thank you for listening in.