After seemingly endless months of political primaries, campaigning, and a heated national debate, the US presidential elections are heading into the home stretch. With less than two weeks before election day and with a RealClearPolitics lead of 5.2 points (down from 7.1 two weeks ago), the Clinton campaign received some very unwelcome news on Friday morning—news that may both fuel Donald Trump’s resurgence while simultaneously removing any vestige of momentum that the Clinton camp has worked so hard to garner.
FBI Director James Comey announced Friday that the agency was re-opening its investigation into the Hillary Clinton email case. Director Comey referred to the re-opening of that case as being a result of “pertinent” emails that have come to light as a result of FBI investigations into the Anthony Weiner sexting scandal. This comes after the July decision by Comey not to file charges against Hillary Clinton over a series of dubious questions pertaining to emails, servers, record keeping, email addresses and a variety of other abnormalities that have come to surface in regards to the Clinton Foundation and Hillary Clinton’s time spent at the US State Department.
If the re-opened FBI investigation into Hillary Clinton’s emails has any impact on the Clinton campaign, I would suggest that it can only be negative and negative news for the Clinton campaign is likely to be negative news for equity markets. Markets are informing us that bad news for Clinton is bad news for the near term outlook for equities. Friday, the news of Clinton’s latest email problems triggered a reversal lower in prices, as investors looked to hedge their bets on the US election outcome. It was a hint of what we can expect if Clinton’s campaign falters.
The Brexit referendum gives us a fairly clear illustration of how investors view a disruption to a well-organized and planned narrative. The news of the successful Brexit referendum sent British and global equities into a tailspin. Though both have recovered handsomely in the ensuing four months, the British pound remains depressed, much to the delight of British exporters. The Brexit success and ensuing recovery has emboldened other nationalist movements across Europe.
Anything other than a Clinton victory on November 8 will result in a selloff of a significantly greater magnitude here in the United States and around the globe. The question is whether or not markets will rebound with as much vigor as was evidenced after the Brexit referendum. I suspect that in the event of a Donald Trump victory, though not likely, markets will trade lower and remain lower for a protracted period of time. It would also lead to a stall in any move higher by the Fed in rates over the near term.
Hillary Clinton’s email problems are not likely to be a treat for investors in either case. If she wins the White house, they aren’t going away. If she loses the White House, look out below.