Investors are increasingly hedging their bets as the presidential race tightens in an unexpected way.
“The market wants certainty and a Donald Trump win will be a surprise,” Burt White, chief investment officer with LPL Financial told clients of Brown & Tedstrom, a Denver wealth manager, on Thursday morning.
White said a Trump win on Tuesday could send markets down another 8 percent, similar to the hit U.S. markets the British voted in favor of exiting the European Union, stunning the pundits.
A win by Hillary Clinton could trigger a relief rally, reversing the losses of recent weeks, while a contested election represents the most chaotic scenario.
Although Trump is expected to pursue tax and regulatory policies more favorable to business, investors don’t understand the details behind his broader policy initiatives, White said.
Trump’s stance on trade, an area he has given details on, would damage the economy and actually subtract from corporate earnings and economic growth, he said.
LPL Financial is studying two barometers as it tries to measure where the race might end up, White said.
When incomes are rising in the year leading into an election, the incumbent always wins, a corollary of the dictum “It’s the economy stupid” that James Carville, an adviser to President Bill Clinton, coined in the 1992 presidential campaign.
are on the rise and with Hillary Clinton as the designated Democratic successor to the Obama administration, that model favors her to beat Trump by 2 percentage points, White said.
But another model is nearly as accurate at predicting outcomes. When U.S. stock markets decline in the three months before a presidential election, the prize almost always goes to the challenger.
The S&P 500 index is down 3.9 percent since July 31 and on an eight-day losing streak that picked up stream when the that it had uncovered e-mails that might require it to reopen a concluded investigation into Clinton’s use of a private e-mail server.
That model is calling for Trump to win by 2 percentage points.
Investments in conventional energy, financial services and pharmaceuticals are expected to perform better under a Trump administration. Multi-nationals, alternative energy firms and health care providers are expected to fare better if Clinton wins.
Both candidates have said they will invest heavily in infrastructure, and construction and industrial firms should do well under either administration.
White said investors should prepare for the possibility of a recession regardless of who wins. In nine of the past 10 times a two-term presidency ended, a recession was already underway or on its way.
