Don’t Believe the Hype, A Trump Win Will Not Cause A Financial Market Disaster

The current presidential polls indicate that while Democratic candidate Hillary Clinton still holds a lead in most polls, her comfortable 5 point lead from a week ago, has dwindled to about 1.5 points. For several months, Wall Street priced in the view that Clinton could easily become the next president, but this assessment began to shift around October 28 after the U.S. Federal Bureau of Investigation reopened a probe into Clinton’s emails and use of a private server during her reign as Secretary of State.

Last week’s price action strongly indicates that a major shift in investors took place. Confidence in Clinton was replaced by fear in Trump. Clinton has always been considered the “status quo” while Trump has been described as “the unknown”.

Throughout the election, business websites have carried articles talking about the negative influence a win by Trump could have on the U.S. stock market. While most articles agree at we could see a 5% setback, some as gone as far as to predict a Brexit like response to a Trump victory. The first prediction, in my opinion, is more likely closer to what I expect to see. The second prediction is just plain sensationalism.

While articles describing in detail what a Trump win could do to U.S. equity markets, have been quite prevalent, articles about what a Clinton win could do to U.S. equity markets, have been ambiguous and quite rare.

If Clinton is the “status quo” then this will mean she will have the same influence on the stock market as President Obama – absolutely zero. The same financial websites that have told us for eight years that stocks have gone up because of the Fed’s low interest rate policy are now trying to tell us that Clinton will be responsible for the next rally. I find this hard to believe.

Investors have already gotten a small taste of what to expect from a Trump victory. Gold rallied, U.S. Treasury instruments rose, and the U.S. Dollar and stock markets declined. So what this means is the system worked. Sure there are going to be adjustments to a new administration that are likely to cause uncertainty. And we all know that Wall Street hates uncertainty.

We know this because the U.S. stock market has seen and recovered from recent uncertainty over events such as a weakening Chinese economy, almost two years of warnings from the Fed about an impending interest rate hike and the U.K. decision to leave the European Union.

So I am not afraid of a Trump victory. Anyone who hasn’t taken protection against the possibility of a decline in stocks will have no argument if their investments lose value. They have had amble time to hedge their positions and prepare for the worst.

Anyone that is predicting a “Brexit-type” response will also be proved wrong simply because Brexit is a long-term nearly irreversible situation. The checks and balances of the U.S. government will prevent Trump from becoming a disaster and the beauty of it all is, if we Americans don’t like him, we can vote him out of office in four years.

My advice with a victory by either candidate is to avoid playing for a financial disaster, a “black swan” like some have predicted, because it’s just not going to happen especially if Trump wins.