By and large, markets across the world — with the exception, perhaps, of the euro and the pound — have become less volatile in recent days and weeks. This is particularly true in the United States, where already low volumes seem to be going ever lower, particularly in equities. To a large extent, this may be because investors have adopted a “wait and see” approach to the US presidential election, scheduled for November 8. In addition there appears now to be a consensus that the US Federal Reserve, due to meet a few days before the election, will not change policy while the election results are still up in the air. Investors may well want to stay out of the markets until both the election and the Fed’s long-postponed move towards further tightening are done and dusted.
In some sense, therefore, investors seem to be writing the US election off as a non-event — at least now that Hillary Clinton has taken what most pollsters believe is a difficult-to-surmount lead over Donald J Trump. There is a solid sense in which most market participants believe that Clinton’s tenure as president will simply be business-as-usual, a non-threatening extension of Barack Obama’s tenure. No major changes need to be made to investment strategies, therefore — no fundamental shifts in how money can be made are being revealed by narrative surrounding the US elections.
But is that a safe assumption to make? There are three possibilities that need to be considered. First of all, Obama’s eight-year tenure was not revealing of the direction in which Democratic policymaking may actually have shifted since Bill Clinton’s tenure. Obama is by nature a moderate, and his early economic advisors in the White House were solid, market-friendly Clintonians. In addition, when he came into office in January 2009, any administration’s priority would have been to restore stability and calm to the financial markets. The next president will instead inherit a solidly recovering US economy, and thus be in a position to make policy with an eye on medium-term political gain rather than on short-term fire-fighting. Nor is Hillary Clinton the moderate that Obama is or her husband was. In spite of her supposed friendliness with Wall Street, her history is of being a greater progressive than either — she ran to the left of Obama in the 2008 primaries.
The second thing to note is that the Democratic Party has itself changed. The anti-Wall Street sentiment stoked by the Democratic left endures. Clinton’s defeated primary opponent, Senator Bernie Sanders, may now be simply a zealous campaigner for Clinton; but he remains the most popular politician in America by far. The various WikiLeaks revelations about the internal workings of the Clinton campaign reveal it is very conscious of the need to appease the party’s left. In addition, the leaks have focused attention on the choices that a Clinton administration would make to head the Treasury department, the commerce department, and the Department of Justice. Clinton will not have any leeway to appoint heads of these departments who have any history of connections to or softness towards Wall Street.
Put together, these two facts suggest that investors are far too sanguine about the possibility that nothing will change for the markets if Hillary Clinton takes over from Obama. It is also worth noting that the spectacle surrounding Trump’s refusal to release his tax returns — and the possibility that he has paid no federal income taxes for over a decade — will almost certainly mean that new attention will be paid to lucrative loopholes in the US tax code.
But the third point is perhaps most worth considering. And that is that there is now a bipartisan consensus in the US that questions the value of integration with the world economy. The reliably pro-trade Republicans have been eviscerated by the anti-trade Trump movement. Pragmatic globalist Democrats — including Clinton herself — have had to bow to the trade-sceptics in their ranks. Global financial integration is increasingly seen merely as an instrument for companies to offshore profits.
If these three points comprise the new post-2016 normal, it is far from clear why Wall Street is sanguine.
m.s.sharma@gmail.com
Twitter: @mihirssharma
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
