Moments after the surprise news broke on Oct. 28 that the Federal Bureau of Investigation was renewing its investigation into Hillary Clinton’s use of a private email server, the Democratic presidential candidate’s seemingly solid five-point lead in the polls started to erode, opponent Donald Trump’s star began to rise, and stocks began to slide.
The Standard & Poor’s 500 index fell a full percentage point in the hour following reports of FBI Director James Comey’s controversial letter to Congress—and stocks have continued to slip. The Dow Jones Industrial Average, which closed at 18169.68 on Oct. 27, has given up 1.55% since then, to finish last week at 17888.28.
(See related story: “Millennial Companies Favor Clinton Over Trump 50 to 1.”
The CBOE Volatility Index, or VIX, Wall Street’s fear gauge, shot up more than 20% within hours of the announcement, to 17.2, and now stands at 22.5. And the cost of insuring an investment portfolio with 5% out-of-the money one-month put options on the S&P 500 index has risen 75% in the past week, according to Goldman Sachs.
As of Friday, Republican nominee Donald Trump trailed Hillary Clinton by just 2.4 percentage points, based on an average of national polls compiled by Real Clear Politics.
So what can investors expect in the event of a Trump victory on Tuesday? Barron’shas weighed the pros and cons for investors of a Clinton or a Trump victory several times in the past year, most prominently in a March 5 cover story,“Trump or Clinton: Who’s Better for Investors?” Now, with the race drawing toward a close, we asked four prominent Wall Street thinkers for their predictions in the event of a Trump victory.
“IF TRUMP WINS, Asian and European markets will start the ball rolling with a selloff,” says David Kelly, J.P. Morgan Asset Management’s chief global strategist, adding that foreign-stock markets are particularly worried about the Republican Trump engaging in a global trade war. But the biggest losses, Kelly says, would likely be in the U.S., where many large-cap stocks with significant exposure to Asian markets could lead the Dow Jones industrials and S&P 500 down.
Jack Ablin, chief investment officer at BMO Wealth Management, says U.S. stocks could fall 5% to 10% on a Trump win, noting “stocks most sensitive to international trade would be hurt the most.” General Electric (ticker: GE), Caterpillar (CAT),Monsanto (MON), and big tech names like Apple (AAPL), Microsoft (MSFT), and Intel(INTC), he says, would likely take it on the chin. “The concern is that there would be retaliation against these companies by China” should a Trump administration take steps to impose protectionist policies, Ablin says.
WHILE THE BROAD MARKET would take an immediate hit, some stocks would be spared or even move up. Traditional energy stocks, from coal companies to oil-and-gas producers, could rise Wednesday, aided by Trump’s proposals to lift moratoriums on energy production in federal areas and to push for completion of the Keystone XL Pipeline, both outlined in his America First Energy Plan.
“All fossil-fuel stocks, especially coal, will rally on Wednesday morning,” says Greg Valliere, chief global strategist at Horizon Investments and a well-known handicapper of the Washington scene for the investor crowd.
BMO’s Ablin adds that “oil and gas could do very well that day because a regulatory blanket that is hanging over that sector could be lifted.” In addition, he says, American steel makers such as U.S. Steel (X) and Nucor (NUE) could get at least a one-day lift, because a Trump administration would be viewed as likely to take steps to crack down on foreign companies dumping cheap steel into the U.S.
PRECIOUS METALS could also rally. J.P. Morgan’s Kelly thinks that just as they did in the wake of the surprise Brexit vote, gold stocks and exchange-traded funds tied to the price of bullion could move up, fueled by the uncertainty surrounding a Trump presidency.
Kelly cautions, however, against making big bets on a Trump or Clinton victory at this point. “This is a reminder that at a time like this it’s best to have a diversified portfolio,” he says. “That way, should risk hit one part of the portfolio, it won’t sink it. This race is too close to call, so if someone says that they know better, they don’t.”
While expectations are high that a Trump victory would lead to knee-jerk selling of most stocks, the markets could soon spring back if “Trump begins to start sounding like he wants to be conciliatory,” says Valliere. “Will he decide, for example, to soften his hard line on trade?”
David Kotok, the chairman and chief investment officer of $2.4 billion-in-assets Cumberland Advisors, agrees, adding that the markets will begin to recover as uncertainty gives way to a clearer picture about who is running the government at both ends of Pennsylvania Avenue. “It’s the election uncertainty that has added to market volatility lately,” he says.
Kotok contends that over time, a President Trump could potentially take steps that actually benefit investors. “Trump wants to lower taxes on individuals and corporations, and while lower rates could mean a higher federal deficit, it would also mean a more friendly environment toward the entrepreneurial class,” he says.