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The market doesn't care who wins the election unless it's Donald Trump


The stock market doesn’t really care who wins the US election.

Unless that person is Donald Trump.

Late Friday, news broke that the FBI would look into more of Hillary Clinton’s emails uncovered as part of the Bureau’s investigation of Anthony Weiner latest “sexting” scandal. In keeping with the theme of this election, these headlines are one part comedy, one part tragedy.

Following the news, markets sold off.

Not in an aggressive fashion — or, as one candidate might say, “big league” — but enough that it reveals the market’s clear preference for a Hillary Clinton presidency.

This is not to say that the market really prefers the policies of a Clinton presidency. The market itself does not have a political view. Rather, this sell off indicates the market’s view on what a Clinton administration most likely represents — more of the same — against the unknown of a Trump administration.

In other words, Clinton provides a modicum of certainty to markets; Trump is the wild card.

Markets hate uncertainty. And in the short-run, it means volatility.

If you open the average Wall Street research note these days you’ll find estimates of a Clinton victory sitting somewhere between 60%-80%. Nate Silver at the widely-followed prediction site 538 pegs Clinton’s chances of winning at around 76%.

In a note to clients earlier this month, Ian Shepherdson at Pantheon Macro wrote that under the most likely election scenario — Clinton wins the White House, Democrats take a small majority in the Senate, Republicans retain a smaller majority in the House — we’ll have gridlock from day one.

“We think the chance of a major infrastructure spending bill is very small, because almost all Republicans will oppose it,” Shepherdson wrote.

So there goes the kind of massive infrastructure package that could jolt bond markets or the US labor market, as some analysts have argued. Instead, we’ll likely get some incremental progress on the US government’s fiscal stance, which has been negative for growth over the last several years.

Of course, both Trump and Clinton have made big economic promises — Trump is going to repeal Obamacare, cut corporate taxes, build a wall, spend $1 trillion on infrastructure, while Clinton will raise taxes, spend $275 billion on infrastructure, and raise the national minimum wage — but the last decade or so of US political wrangling has conditioned markets to fade any promises.

The global-economy-saving TARP bill, after all, was voted down the first time. (This event was followed by a 778 point plunge in the Dow.)

But I think the market’s reaction to Friday’s latest round of Clinton email headlines once again sheds light on the absurdist way people in and around financial services talk about the “stock market.” As if “the market” is a coherent, thinking, feeling entity and not a reflection of what investors think a collection of certain businesses is worth.

But so the entity we refer to as “the market” is, in my view, agnostic to the politics of either Hillary Clinton or Donald Trump. The market will roll with whatever punches are landed by the winning candidate, and whoever wins the next election and the election after that. Businesses will be valued or re-valued, regulations will be put in place or shot down, and so on.

What markets don’t like, however, is uncertainty.

Just think about how often a company is penalized or rewarded for providing negative or positive guidance on its upcoming financial results. Investors love guideposts and they are trusted implicitly.

Looking at markets and what they seem to prefer, then, what we learned Friday is that a Trump presidency is viewed skeptically. A Trump presidency cannot provide forward guidance. A Trump presidency is viewed as uncertain.

And this is what markets don’t like.

Myles Udland is a writer at Yahoo Finance.

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