WORST FEARS

Trump as Stock Market Bogeyman

Republican U.S. presidential candidate Donald Trump shows off the size of his hands as Fox News Channel moderators Brett Baier (L) and Megyn Kelly (R) look on at the U.S. Republican presidential candidates debate in Detroit, Michigan, March 3, 2016. REUTERS/Rebecca Cook
Donald Trump may not care what others think, but stock markets do.
  • Why it matters

    Why it matters

    It’s a scary time in the deeply polarized United States, where many voters are guided by anger and frustration, and not the issues. That’s what really worries stock markets.

  • Facts

    Facts

    • Following the 14 Super Tuesday primaries, Donald Trump has built a commanding lead over the divided GOP field.
    • Some Republican conservatives are considering a third party option if Mr. Trump wins the nomination.
    • The next big test is March 15, when primaries will be held in the crucial states of Florida, Ohio, North Carolina, Missouri and Illinois.
  • Audio

    Audio

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U.S. investors understandably tend to love capitalism and its mantra of a free market. They typically hate anti-business social programs and tax increases. It’s why, in American politics, investors generally scorn free-spending Democrats and favor presidents from the ranks of fiscally-minded Republicans.

For many this assumption has come to be a stock market rule. Actually, it’s all wrong.

Since the beginning of the 20th century, the S&P 500 stock index in the United States has increased 10 percent annually on average when Democrats are in the Oval Office. With Republican presidents, according to calculations by Fidelity financial services, share prices rose by barely 2 percent a year.

“The image of Trump with his finger on the button blows my mind. ”

Lloyd Blankfein, CEO of Goldman Sachs

Pehaps the most spectacular example is the stock market boom during the eight-year presidency of Democratic President Bill Clinton, from 1992 to 2000.

European investors are also watching closely: Trends like these often carry over to European markets, which often take their cues from Wall Street.

So what can we learn from this for the 2016 U.S. presidential campaign?

Certainly, investors have other worries right now. They are afraid of an economic boom ending in China, a weakened world economy, plunging oil prices, and Great Britain possibly leaving the European Union.

But ever since Super Tuesday this week, primaries in 14 states have added another factor that makes investors nervous. It’s not about the most likely Democratic candidate, Hillary Clinton, possibly moving into the White House. It’s about Republican front-runner Donald Trump, the real estate mogul, TV personality and angry political outsider.

“The image of Trump with his finger on the button blows my mind,” said Lloyd Blankfein, chief executive and chairman of the investment banking giant Goldman Sachs.

Mr. Blankfein was referring to the possibility that Mr. Trump will go on to win the GOP nomination and presidency — at which point he not only could help decide U.S. tax policy, but also deploy nuclear missiles.

The times when few analysts believed the impulsive 69-year old billionaire could be the Republican nominee are over. Those who still laugh at Mr. Trump as a fringe candidate, with no chance against Ms. Clinton, are mistaken.

But what makes him popular with many Americans is what made him unpopular with banks and investment houses. Mr. Trump, despite being the Republican candidate, castigates huge salaries for executives and demands higher taxes for hedge funds.

 

Hillary Clinton vs. Donald Trump-poll voter survey 01

 

For him, Wall Street investors are bloodsuckers. Most of all, the angry populist has taken aim at little-loved hedge-fund managers. Under the present system, Mr. Trump rails, they could even get away with murder.

There’s a saying in German finance that the political stock market has a short lifespan — meaning that the influence of politics on share prices is only temporary. Because in the long run, it is hard facts like company profits, interest rate decisions and economic data that drive stock prices.

But it is also true that what trading floor brokers fear most is uncertainty. The greater it is, the harder it is to speculate and win.

Mr. Trump’s campaign isn’t the real problem, since the laws of tomorrow are likely to have very little in common with his populist threats and vociferous promises today.

What is far more terrifying to investors are Mr. Trump’s bizarre and unpredictable changes in direction between socialism, capitalism, anarchy and isolationism.

Mr. Trump alternates between calling for punitive tariffs on Chinese imports, cutting the top personal income tax rate from 40 percent to 25 percent, and new taxes for stock brokers. He says he will build a 1,933 mile-long wall along the Mexican border and deport more than 10 million immigrants who, as a rule, work in low-wage jobs that few Americans want.

Financial markets are usually suspicious of higher taxes for companies and consumers, including the kinds of health care reforms that many Democrats support and President Barack Obama pushed through during his presidency. But they are much more alarmed at fear-mongering by Donald Trump against everything foreign – and against immigrants who once made America strong.

The history of stock markets certainly doesn’t guarantee that a future Republican president will lead to a tumble in share prices. But the prospect does seem to be getting more real with each day that brings Donald Trump closer the White House.

 

To contact the author: sommer@handelsblatt.com 

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