Election Economy

Investors Brace for Bumpy Markets

  • Why it matters

    Why it matters

    As the U.S. presidential election has unfolded with twists and turns, the stock market has taken plentiful hits. Turbulence could continue well after the election’s outcome.

  • Facts

    Facts

    • The reemergence of Hillary Clinton’s email scandal has tightened the U.S. presidential race, worrying major investors.
    • The U.S.’s vital S&P 500 index has been on a losing streak for seven days in a row. The Mexican peso has also lost more than 3 percent on the U.S. dollar.
    • Stockholders are predicting Ms. Clinton to win, but with a Republican majority in the House of Representatives.
  • Audio

    Audio

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Trading On The Floor Of The NYSE While U.S. Stocks Rise On Deal Activity As Election Looms
Traders on the floor of the New York Stock Exchange (NYSE) assess the outlook for the presidential election and interest rates in the world's largest economy. Source: Bloomberg

Doubts about Hillary Clinton’s ability to win a vast majority in the race for the White House have set investors on edge, since the FBI’s recent investigations into the Democratic presidential candidate’s latest email scandal. Stockholders are preparing for short-term fluctuations in the market after the election takes place on November 8.

Such uncertainty is reflected in the exchange rates. The U.S.’s vital S&P 500 index has been on a losing streak for seven days in a row, with  many fleeing to the safe haven of gold. The Mexican peso, which was recognized by Credit Suisse as the “ultimate indicator” of the U.S. market, has lost more than 3 percent on the U.S. dollar in the wake of a fresh probe into Hillary Clinton’s emails.

“We are expecting a tight race,” said Martin Lück, chief investment advisor for Germany at Blackrock, the world’s largest asset manager.

“We learned from the Brexit vote in the U.K. that voters in mood surveys are often not honest if they believe their view is unpopular.”

Kristina Hooper, U.S. capital market strategist at Allianz GI

Mr. Lück is hesitant to predict an election outcome, as is Ulrich Kater, chief economist at Deka, a subsidiary of Germany’s Sparkasse bank. Many major investors are still counting on Ms.Clinton winning the presidency, but “the potential for surprise is unquestionably present,” he said.

As a result, large-scale investors are tense. “It is becoming close again,” Mr. Lück said. “While in recent weeks, it looked as if there was a substantial difference between Clinton’s distinct lead and the referendum in the United Kingdom, this has changed again in the last week of the election campaign. The Brexit smell is all over this U.S. election.”

For this reason, major investors are suspicious of polls. “We learned from the Brexit vote in the U.K. that voters in mood surveys are often not honest if they believe their view is unpopular,” said Kristina Hooper, U.S. capital market strategist at Allianz GI.

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Who will lead the world’s largest economy is not the only decision that will move markets. The outcome of the vote for Congress, the U.S. legislative branch, and the resulting balance of power will also prove decisive for the international climate, according to Lück.

A Clinton victory with a Republican majority, at least in the House of Representatives, would likely leave most investors relieved. This scenario is what’s most widely expected, and would limit short-term market fluctuations. Currencies such as the Mexican peso, for which a Trump victory carries particular risks, would be likely to recover. However, some industries, for example the healthcare sector, would face a few turbulent days, as Ms. Clinton has said she will look closely at these areas.

“In the long-term, much will depend on whether Clinton works more successfully with the Republicans in Congress than Obama in the last six years,” said Stefan Kreuzkamp, chief investment advisor and CEO of Deutsche Asset Management, the stock subsidiary of Germany’s largest bank Deutsche Bank.

Anke Rezmer covers the finance sector from the Handelsblatt’s Frankfurt bureau. To contact the author: rezmer@handelsblatt.com

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