Watch out for the Clinton or Trump effect on your investments

While the candidates may think there is still everything to play for, history suggests the opposite. In all but one case since the start of electoral polling in the US, the candidate in the lead on Labor Day, according to the Gallup poll, has gone on to win.

So what can investors in US companies expect in the run- up to the election and beyond? The US ‘bull market’ has now been ‘raging’ for 90 months. An average bull market (where share prices are rising) lasts for 54 months. Valuations are looking expensive and earnings have probably peaked.


There are also concerns about the strength of the US recovery and longer-term worries about central bank potency and the strong dollar. So even without any election uncertainty, I’m wary of where the US stock market will go from here.

There are numerous statistics around which political party is best for markets (see table below, which you can click to enlarge), but it’s hard to see a meaningful pattern. Macroeconomic events usually have more of a bearing on stock market performance.

However, the market is likely to respond quickly to news flow. These may be short-term reactions, but they can wipe out previous gains very quickly.

You only need to recall the ‘tweet that launched a thousand shorts’ in September 2015. In response to a drug price rise, Hilary Clinton tweeted: “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. H”. It knocked $15 billion off the value of US biotech stocks.

So policy details will be key, and in this respect it is easier to gauge what may happen under a Clinton leadership, as there are 500-plus pages detailing her proposals on her website. By contrast, Donald Trump has prepared just 20 pages.

Here is what we know so far on some key issues.

  • Both candidates are likely to be tough on banks and financial services, increasing regulation and oversight, and healthcare is always a key issue.These two sectors combined account for around a third of US stock market capitalisation. So any changes could be significant.
  • Following the footsteps of Japan, we will see a move away from monetary stimulus and reliance on the Federal Reserve to take action to support the economy to fiscal stimulus in the form of infrastructure spend and tax reform.


Mrs Clinton has said she will spend the most on infrastructure spending since World War II. Mr Trump has said his will be double her amount. But will this spend be on highways, maintenance or construction or on something else? We have yet to be told.

How the fiscal stimulus is funded will also be important for the equity market. If corporation tax is increased, it will be even more of a challenge for companies to grow earnings.

Unemployment is now only 4.7% and wages are firm, so companies have three options: raise prices, cut costs or allow profit margins to take the strain. It’s too early to pick the winners and losers here.

Mr Trump would be likely to confront companies that have moved their facilities to Mexico in particular (for example, Ford). And he may make waves with China over currency ‘manipulation’.

Where should you invest?

US investors have been flocking to safe haven investments: US government bonds and quality companies with a US bias – shunning international large-caps in favour of smaller and medium-sized businesses.

This plays to the style of some of our favoured funds, such as AXA Framlingon American Growth, with its bias towards medium-sized companies, and Schroder US Mid Cap.

  • Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott's views are his own and do not constitute financial advice.


Darius McDermott is the managing director of Chelsea Financial Services and FundCalibre.