It may have been an ugly process, and it may not have been the outcome that half the electorate wanted, but the rising certainty that Hillary Clinton had a clear path to the White House instilled some degree of comfort in global markets. Clinton being more or less a status quo candidate, market participants could at least anticipate an environment of incrementalism in matters of trade, healthcare, social and environmental policy, particularly if she found herself squaring off against an opposition party legislative branch. The prospects with the more mercurial Donald Trump and his platform of disruptive change were far more uncertain. His adversarial stance on foreign trade and immigration, his desire to abruptly terminate ACA, and deregulatory mindset would likely introduce a great deal of volatility in work markets simply because investors are unsure how to “trade Trump”. This is not an assessment of the relative merits of either candidate – only an observation that markets tend to be better behaved when there is greater clarity on policy.
There have been so many “October surprises” so far that little else could have been envisioned. We had both Trump’s and Bill Clinton’s peccadilloes with women discussed and even paraded before the cameras, repeated hacks and Wikileaks disclosures of the DNC’s and Clinton campaign’s internal correspondence, and unprecedented animosity on stage in the debate arena. It figures when the bar of surprise was already raised so high that it would take an Olympic pole vault to clear it, and FBI Director James Comey took his run at it last Friday. His letter to Congress regarding the possible pertinence of emails from the Anthony Weiner “sexting” investigation to the Clinton email investigation was profound in its electoral implications on its own, and was further compounded by the posting of files from the end of Bill Clinton’s Presidency pertaining to the pardoning of Marc Rich. Director Comey has put the FBI and Justice Department in the unprecedented position of being a last-minute spoiler in a Presidential election. Polls immediately tightened, Republicans closed ranks, and the election picture got a lot fuzzier.
Our concern as investors is not that Trump’s odds have improved. It is that we have lost a lot of confidence in the outcome, and that either candidate as a winner comes with a lot of potential disruption in his or her wake. We now face the prospect that Clinton as President-elect could be mired in controversy, Federal investigation, and worst-case, if there actually is fire to go with the smoke, that she could be indicted before she ever takes the oath of office. Add to that the rhetoric attempting to delegitimize election results ahead of the polls and we could be facing turbulent times ahead. The status quo candidate has become anything but. The Washington outsider, followed by his own controversies and lack of clarity on how he would build his administration, presents no more certainty.