{"id":14514,"date":"2016-11-08T05:15:52","date_gmt":"2016-11-08T05:15:52","guid":{"rendered":"http:\/\/www.biphoo.com\/bipnews\/?p=14514"},"modified":"2016-11-08T05:15:52","modified_gmt":"2016-11-08T05:15:52","slug":"u-s-election-guide-to-markets-what-to-watch-once-its-all-over","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/news\/u-s-election-guide-to-markets-what-to-watch-once-its-all-over.html","title":{"rendered":"U.S. Election Guide to Markets: What to Watch Once It’s All Over"},"content":{"rendered":"

U.S. Election Guide to Markets: What to Watch Once It’s All Over<\/span><\/strong><\/h2>\n

U.S. Election Guide to Markets: What to Watch Once It’s All Over:-<\/strong> Investors suddenly became much more confident that Hillary Clinton will prevail over Donald Trump for a status quo outcome in the U.S. presidential campaign — a Democrat in the White House reined in by Republicans in Congress.<\/span><\/p>\n

Option bets on where the S&P 500 Index will be on the day after Tuesday\u2019s vote suggest Hillary Clinton has 71 percent chance of winning, up from 63 percent last week, Janus Capital Group Inc. said in an e-mail. That leaves investors more aligned with prediction-market gamblers and polling-aggregator forecasts, which mostly give her better odds.<\/span><\/p>\n

The Janus analysis was consistent with market moves after the Federal Bureau of Investigation reaffirmed on Sunday that it won\u2019t seek criminal charges related to Clinton\u2019s e-mail practices. The S&P 500 broke its longest losing streak in 36 years and regained most of what it had lost since the FBI reignited the e-mail controversy on Oct. 28. That news had driven safer assets up and riskier ones down — hedges against a Republican upset that were all dialed back on Monday, as shown by this chart:<\/span><\/p>\n

The aftermath of a come-from-behind Trump victory would be similar to the fallout from the U.K.\u2019s June vote to leave the European Union. \u201cWe envision a violent flight to quality\u201d if Trump wins, Barclays Plc said in a report. A Democratic sweep may also be disruptive, but that\u2019s now a remote possibility. JPMorgan Chase & Co. raised a third potential surprise in a report that might produce a similar reaction. The title: \u201cI demand a recount.\u201d<\/span><\/p>\n

Over the longer term, both candidates want to increase spending and cut taxes, which would be bullish for stocks and bearish for fixed income. Below is a look at potential winners and losers. But first, a caveat. Investors\u2019 immediate reaction to U.S. elections often doesn\u2019t last, as illustrated here:<\/span><\/p>\n

Stocks<\/span><\/p>\n

Clinton Wins: \u201cThe market has already priced in a Clinton victory,\u201d said Margaret Yang, a CMC Markets analyst in Singapore. \u201cAny upside will be limited if she wins.\u201d Barclays Plc said in a report that the S&P 500 Index could gain as much as 3 percent. Societe Generale SA said the benchmark would hit 2,200, 3.2 percent above Monday\u2019s close, immediately after a Clinton win and rise to 2,350 by mid-2017.<\/span><\/p>\n

Beyond an initial \u201crisk-relief rally on the prospect of policy continuity and predictability,\u201d Deutsche Bank AG said that Clinton\u2019s plans to limit the capital gains tax break may \u201chave <\/span>negative\/dampening impact on some key risk bellwether assets like equities into the turn of the year.\u201d<\/span><\/span><\/p>\n

The biggest losers would be finance and drug companies.<\/span><\/p>\n

\u201cA potential Democratic sweep would represent one of the toughest election outcomes for banks,\u201d Morgan Stanley said in a report, citing the risk of tougher rules and tax changes that might hurt companies like Goldman Sachs Group Inc. and JPMorgan. Moves against carried-interest rules that benefit asset managers, also targeted by Trump, would hurt firms including Janus Capital and Waddell & Reed Financial Inc.<\/span><\/p>\n

Under Clinton, pharmaceutical and biotech stocks \u201ccould be hit by renewed pressure to curb price increases on drugs,\u201d BlackRock Inc. <\/span>researchers said in a report, noting her complaints about rising costs. Citigroup Inc. cut its rating on the European health-care industry to underweight in September, citing U.S. election risks. Drugmakers Novo Nordisk A\/S and Roche Holding AG have trailed the broader market this year as Clinton\u2019s prospects rose, with the shares gaining only during times when her polling numbers fell.<\/span><\/p>\n

Hospital operators and Medicaid providers such as HCA Holdings Inc. and Universal Health Services Inc. may benefit from continued Affordable Care Act subsidies, according to analysts <\/span>from Strategas Research Partners, LPL Financial Holdings Inc. <\/span>and Credit Suisse Group AG. UBS Group AG sees education stocks rising under Clinton.<\/span><\/span><\/p>\n

Her plans to reduce dependence on fossil fuels would boost alternative energy producers, with Morgan Stanley touting the prospects of Sunrun Inc. and NextEra Energy Inc. under Clinton. <\/span>Strategas also likes First Solar Inc. in that scenario. Evercore ISI adds General Electric Co., Tesla Motors Inc., SolarCity Corp. and Exelon Corp. to the list in its pre-election report.<\/span><\/span><\/p>\n

A Democratic sweep increases the odds for a minimum wage hike, which cuts both ways for consumer stocks, Morgan Stanley said.<\/span><\/p>\n

Trump Wins: \u201cValuations of U.S. equities are quite high, and a Trump victory will trigger a massive selloff,\u201d CMC\u2019s Yang said. Many would consider that a classic \u201cblack swan event,\u201d she added, so the reaction would be \u201cmuch more severe\u201d than Brexit, which caused the S&P 500 Index to fall 5.3 percent in two days as benchmarks in Europe and elsewhere lost even more.<\/span><\/p>\n

Barclays predicted an S&P 500 nosedive of as much as 13 percent if Trump wins. Citigroup equity strategist Tobias Levkovich put the hit at no more than 5 percent in a report. Societe Generale sees a drop to 1,950, or 8.5 percent lower than Monday.<\/span><\/p>\n

Judging the Republican\u2019s longer-term impact is difficult to assess because \u201csome of Trump\u2019s policy proposals are so unconventional (trade, immigration) and others so vague (fiscal),\u201d said John Normand, JPMorgan\u2019s head of foreign exchange, commodities and international rates research, in a report.<\/span><\/p>\n

BlackRock\u2019s analysis of the correlation between the two candidate\u2019s polling numbers and sector stock performance suggest drugmakers, <\/span>insurers and banks are expected to do better under Trump. Bloomberg News did a similar analysis for individual U.S. stocks.<\/span><\/span><\/p>\n

Even some of these sectors, however, face Trump-related risks. He favors repealing Obamacare and allowing the importation of prescription drugs, which could hurt pharmaceutical companies, Morgan Stanley said. And finance companies may prefer Trump, but BlackRock warned that repealing the post-crisis Dodd-Frank law, derided by the industry\u2019s Republican allies, may result in \u201csimpler and blunter but equally onerous rules.\u201d<\/span><\/p>\n

Companies that build and maintain civil <\/span>infrastructure, such as Caterpillar Inc. and Ingersoll-Rand Corp., would have bigger opportunities for government work under Trump, given that his plans for such spending are much more ambitious than Clinton\u2019s. The same holds true for military contractors, Credit Suisse said.<\/span><\/span><\/p>\n

Morgan Stanley sees NRG Energy Inc., which uses coal to produce electricity, benefiting under a Republican White House, due to less regulation and slower growth in the use of renewables. The bank said consumer stocks could be hurt by a Trump win because tougher immigration restrictions could crimp labor supply and consumer demand.<\/span><\/p>\n

Given Trump\u2019s support for incentives to encourage businesses to repatriate offshore cash, companies with big hordes overseas \u201cshould outperform,\u201d UBS said, estimating that non-financial S&P 500 companies have $1.1 trillion \u201ctrapped\u201d abroad. Companies that stand to gain the most are largely confined to the technology, health care, industrials and consumer discretionary sectors, UBS said, noting that Clinton has also mentioned repatriation.<\/span><\/p>\n

The Japanese stock market may get hit harder than others, falling as much as 10 percent due to the yen strengthening, Citigroup said in a report. \u201cThere could be investment opportunities in infrastructure names and military-related stocks in any subsequent correction,\u201d the report said, citing Hitachi Ltd., Nippon Steel & Sumitomo Metal Corp. <\/span>and Mitsubishi Heavy Industries Ltd., among others.<\/span><\/span><\/p>\n

Bonds<\/span><\/p>\n

Clinton Wins: A victory by the Democrat would initially drive up yields as investors sell off Treasuries in favor of riskier assets, Bank of America Corp. analysts said in a report. Ripple effects would raise borrowing costs for individuals and corporations worldwide because U.S. sovereigns are the global debt benchmark.<\/span><\/p>\n

Yields on 10-year U.S. bonds have risen as much as 36 basis points since Clinton\u2019s lead over Trump started widening in late July, and the <\/span>
\nbank\u2019s analysts called the Democratic Party\u2019s improving prospects \u201ca major factor\u201d behind that move.<\/span><\/p>\n

Market participants surveyed by Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, predicted an average increase of 5 basis points if Clinton wins, he said. Normand sees a much smaller reaction, <\/span>titling the Clinton section of his report \u201cnext to nothing changes.\u201d<\/span><\/span>
\nOver the longer term, a Clinton victory would do little to yields — as long as Republicans retain control of at least one chamber of Congress — because her fiscal stimulus would be relatively small, especially compared to Trump\u2019s plans for bigger tax cuts and more infrastructure spending. A Democratic sweep would likely result in more spending and may drive yields higher.<\/span><\/p>\n

Municipal debt could gain under Clinton because any increased taxes she imposes on the wealthy would make tax-free bonds more attractive, BlackRock said.<\/span><\/p>\n

Trump Wins: In the two weeks after the U.K. gobsmacked pollsters and voted to leave the EU on June 23, the U.S. benchmark 10-year yield fell 39 basis points and didn\u2019t return to pre-Brexit levels until September. Something akin to that may happen if Trump defies conventional wisdom. Credit Agricole SA predicts a \u201cmassive disjoint\u201d that would send 10-year yields down at least 10 basis points if he prevails. <\/span>Lyngen\u2019s survey average predicted a smaller drop. JPMorgan\u2019s Normand said the yield would fall below 1.7 percent in the days after a Trump win, from 1.83 percent on Monday.<\/span><\/span><\/p>\n

After the dust settles, Trump\u2019s tax cuts and <\/span>infrastructure-spending plans may drive yields back up, especially if Republicans hold both the House and Senate. That impact could be exaggerated if the Republican\u2019s isolationist foreign policy prompts countries with large Treasury <\/span>stakes to unload them, Credit Agricole analysts said. Fiscal largess would also benefit inflation-linked bonds, which already are outperforming nominal securities this year.<\/span><\/span><\/p>\n

Yields would only remain flat under Trump, according to Bank of America, in the unlikeliest event of all: President Trump finds himself up against Democrats controlling both houses of <\/span>Congress, because they would resist his massive tax cuts.<\/span><\/span><\/p>\n

Trump\u2019s support for fossil fuels could spur a rebound for energy industry bonds, especially high-yield ones, after two years of major losses in the commodities slump, Wells Fargo & Co. said in a report. As for munis, \u201cTrump\u2019s plan to slash personal tax rates could deal a blow to the asset class,\u201d BlackRock\u2019s report said.<\/span><\/p>\n

Currencies<\/span><\/p>\n

Clinton Wins: The U.S. dollar would gain versus other developed-market currencies, with the Democrat heading toward the White House as traders focus attention on the likelihood that the Federal Reserve will raise rates in December, according to Capital Economics, a London research firm. Down the road, Bank of America sees the greenback gaining under Clinton only if the Democrats take Congress.<\/span><\/p>\n

Emerging-market currencies would see \u201cmodest and transitory\u201d gains because a Clinton win \u201cis mostly — but not fully — priced in,\u201d though Russia may be an exception, Societe Generale said. Mexico\u2019s peso would benefit the most, the report said. Citigroup told its clients that there might not be major peso gains if Clinton wins.<\/span><\/p>\n

The currency has acted as a barometer of the presidential contest, moving in tandem with her chances of defeating a candidate who wants to revamp trade deals, restrict immigration and make the U.S.\u2019s southern neighbor pay for a border wall.<\/span><\/p>\n

If Clinton triumphs, the peso will strengthen to 18.25 per dollar, a 1.7 percent gain from Monday, and the Canadian dollar would also rise, Normand of JPMorgan said before the latest FBI news. Elsewhere, most Asian currencies would rally 2 percent or so in relief, said Cliff Tan, a strategist in Hong Kong <\/span>for Bank of Tokyo-Mitsubishi UFJ.<\/span><\/span><\/p>\n

Trump Wins: The foreign-exchange markets this month suggested what might happen if the Republican triumphs, with the dollar tumbling against most major currencies and the Mexican peso plunging before Monday\u2019s recovery on the FBI\u2019s announcement about Clinton\u2019s e-mails. Societe Generale sees Mexico\u2019s currency at 23 per dollar after a win by the Republican, 19 percent weaker than Monday, while Bank of America said traders already \u201chave gone a long way toward pricing in a surprise Trump victory.\u201d<\/span><\/p>\n

JPMorgan\u2019s Normand predicted one-day slides of 8 percent for the peso and 5 percent for the Canadian dollar — based on a President Trump\u2019s power to impose protectionist measures unilaterally. The currencies of the U.S.\u2019s neighbors would then recover some, he said, with Mexico\u2019s central bank intervening to defend the peso and Congress moving to restrain Trump\u2019s trade policies. Actions by Mexican authorities \u201cwill be seen as inevitable,\u201d said George <\/span>Lei, a Bloomberg currency strategist.<\/span><\/span><\/p>\n

Other developed-market currencies including the yen, euro, pound and franc may also gain on concern that China would dump U.S. assets and the Fed would delay tightening monetary policy, analysts said. Normand sees the yen gaining 3 percent. Societe Generale sees it strengthening to 99 per dollar, 5.6 percent more than Monday. Commodity-linked currencies including the Canadian dollar also \u201cwould lose ground,\u201d BMO said. The greenback could then rally in a three- to <\/span>nine-month horizon as Republicans usher in tax cuts and <\/span>other fiscal stimulus to boost economic growth, Bank of America said.<\/span><\/span><\/p>\n

The candidate\u2019s hostility toward China — including threats of steep tariffs over alleged currency manipulation — likely would drive the offshore yuan down about 3 percent by year\u2019s end, said Ken Cheung, a foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong. Longer term, the currency may fall more gradually under Trump as he exerts political pressure on the country\u2019s leaders to slow its depreciation, said Xu Gao, an economist at Everbright Securities Co. in Beijing.<\/span><\/p>\n

Risk aversion in the aftermath of a Trump win would also push down other developing-world currencies on fears that his protectionist stances could hurt emerging economies by reducing imports from them. That \u201ccould be negative for high-yielder countries,\u201d Credit Agricole said in a report. The South Korean won may take a hit, given questions that Trump has raised about the need for U.S. troops on the North Korean border.<\/span>
\n\u201cDownward pressure on EM FX is likely to be sustained for quite some time\u201d with a Trump win, Societe Generale said in a report Monday, citing the Turkish lira and Taiwanese dollar as among those at risk. Russia\u2019s ruble \u201cwould benefit the most from Trump\u2019s alleged pandering\u201d to the regime of Vladimir Putin.<\/span><\/p>\n

If Republicans sweep, the euro might fall against the dollar, BMO said, because they would be inclined to open a <\/span>foreign-earnings repatriation window for American companies to bring money back home, and \u201ca high concentration of U.S.-based multinationals\u2019 earnings are held\u201d in Europe.<\/span><\/span><\/p>\n

Emerging Markets<\/span><\/p>\n

Clinton Wins: It\u2019ll be risk-on if the Democrat retains control of the White House, which bodes well for developing markets.<\/span><\/p>\n

Investors may respond by bidding up Chinese defense shares because Clinton comes across as the more hawkish candidate, said Francis Cheung, head of China and Hong Kong strategy at CLSA Ltd. Commodity producers in the developing world might rally on expectations that U.S. demand will increase along with infrastructure spending.<\/span><\/p>\n

Trump Wins: \u201cI can\u2019t think of any country that would benefit if Trump wins,\u201d CMC Markets\u2019 Yang said. Evercore\u2019s report mentioned one nation that might get a boost, suggesting investors buy Russian equities to hedge against the Clinton-leaning polls being wrong.<\/span><\/p>\n

Nadia Kazakova, a Russian oil and gas specialist for Saxo Group, said she\u2019s not convinced the country would benefit economically from Trump. If he wins, the global shock \u201ccould strike Russian markets much harder than others\u201d due to risk aversion and falling commodities. \u201cAnd as Trump makes America great again, would he still have the heart for a great deal with not-so-great Russia?\u201d she wrote in a report.<\/span><\/p>\n

Citigroup sees the MSCI Emerging Markets Index immediately falling at least 10 percent, with Mexican stocks leading the way down. The Institute for International Finance explained why in a report on Thursday: \u201cNearly 80% of Mexico\u2019s exports go to the U.S.,\u201d and \u201cworkers\u2019 remittances are one of the three largest sources of foreign currency,\u201d behind oil and tourism.<\/span><\/p>\n

One possible bright spot for Mexico: Construction companies such as Cemex SAB de CV may be positioned for contracts to build Trump\u2019s proposed border wall.<\/span><\/p>\n

In Asia, \u201cChina will bear the brunt of risks if Trump wins,\u201d said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong, by phone. \u201cHe\u2019ll probably introduce trade policies targeted against China,\u201d weakening its economy.<\/span><\/p>\n

Protectionist U.S. policies also would be \u201cbad for a lot of economies that rely a lot on exports,\u201d said Ben Bei, an analyst at CIMB Securities Ltd. in Hong Kong.<\/span><\/p>\n

Peng said exporters from South Korea and Taiwan are among those with the most to lose. Yang adds Southeast Asia exporters to the list, including companies in Indonesia, Singapore, Thailand, Philippines, Malaysia and Vietnam. Citigroup called Latin America \u201cmost vulnerable\u201d to U.S. protectionism.<\/span><\/p>\n

To the extent that Trump is less welcoming to workers from abroad, his victory may hurt the Philippines\u2019 broader economy, which gets the bulk of its overseas remittances from Filipinos employed in the U.S., Yang said. Capital Economics put that country, followed by Taiwan and South Korea, as the Asian countries “with the most to lose” from Trump.<\/span><\/p>\n

\u201cIndia and Indonesia will be least affected if Trump wins,\u201d due to their robust domestic growth, Peng said. Pakistan should also be \u201crelatively unaffected,\u201d Capital Economics said.<\/span><\/p>\n

Commodities<\/span><\/p>\n

Clinton Wins: Her environmental policies, especially her promise to combat climate change, will put pressure on coal and oil. The natural gas market could get a boost from her pledge to wean power plants off coal by using gas as \u201ca bridge\u201d to more reliance on renewables.<\/span><\/p>\n

Trump Wins: Natural gas prices likely would suffer as coal benefits under Trump. He has promised to roll back environmental rules that squeeze coal out of the U.S. power market and promoted \u201cclean coal\u201d during one of the debates. Bloomberg Intelligence in September estimated that a victory by the Republican would shave 11 percent off natural gas demand in 2030 from last year\u2019s levels, boosting coal use.<\/span><\/p>\n

Oil prices could get a lift from the return of a risk premium if Trump continues with the \u201cbellicose language that\u2019s been heard on the campaign trail\u201d about Iran and scraps President Barack Obama\u2019s nuclear deal with the country, said John Kilduff, a partner at Again Capital, a New York hedge fund focused on energy. JPMorgan\u2019s Normand sees Brent crude oil rising to $54 a barrel by year\u2019s end, a 17 percent gain from<\/span><\/p>\n

Monday, but not before falling 5 percent or so initially \u201cin sympathy with equities, much as occurred after Brexit.\u201d<\/span><\/p>\n

Gold, platinum and silver would the \u201cbiggest winners\u201d if Trump wins, said Yang, the CMC Markets analyst.<\/span><\/p>\n

After the FBI\u2019s surprise announcement about the Clinton e-mail inquiry on Oct. 28, all precious metals rose before giving back much of those gains on Monday. Normand sees gold immediately rising to $1,350 an ounce if Trump wins, about 5 percent higher than Monday, before retreating in the next month to $1,225.<\/span><\/p>\n

Copper may also get a bounce, Barclays said, citing moves in the metal\u2019s price during the campaign suggesting \u201ca Trump-related premium\u201d based on his plans to boost spending on bridges, roads and the like. Normand disagrees, calling Trump\u2019s \u201cgargantuan infrastructure ambitions\u201d too vague and unrealistic to support base-metal prices for long. Given the <\/span>danger his trade agenda poses to Asian growth, he sees copper immediately falling 3 percent if Trump wins.<\/span><\/span><\/p>\n

Source:-\u00a0http:\/\/www.bloomberg.com\/politics\/articles\/2016-11-08\/u-s-election-guide-to-markets-what-to-watch-once-it-s-all-over<\/span><\/p>\n

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