white building with blue sky and american flag waving

Why The Presidential Race Will Continue To Rattle Markets

February 2016

A A A

I rarely comment on day-to-day political happenings. Politics is a key part of market and economic analysis, to be sure, but the connections are indirect and take time to show up. Plus, what politicians say often has little relation to what they intend to do, and what they intend to do may have little relation to what actually gets done.

A few months ago, when I was asked to weigh in on a rumor that Hillary Clinton planned to raise taxes, I responded that worry was premature. After all, this was a rumored proposal by a potential (at that time) presidential candidate who would first have to get the nomination, then win the election, then actually get Congress to pass a bill.

More uncertainty than usual

I still believe that, from a policy perspective, we shouldn’t be overly concerned about specific proposals. At this point, the candidates’ policy proposals are just wish lists, not firm intentions. But for the first time in a very long time, the political process itself has become a source of uncertainty—and risk.

Widening range of outcomes.

One thing that stands out is the unprecedentedly wide range of potential outcomes. Time was, we had a slightly right-of-center candidate and a slightly left-of-center candidate, and the policies on offer ranged from A to B. Now we have Bernie Sanders to the left, Ted Cruz to the right, and Clinton and Donald Trump somewhere in the undefined middle.

There’s a real chance that this election will bring outcomes well outside the norm, policy-wise. This alone is enough to rattle markets.

Surge in populist sentiment.

The other significant change has been the rise of populism. In both parties, sacred policy cows are being sacrificed to a sense that old answers don’t work. Populists are typically against vested interests, including financial ones, and the prospect of a more difficult environment for business could well depress profitability and stock prices, even if a Republican (i.e., Trump) were elected.

Get ready for volatility ahead

Neither of these factors is dependent on the current candidate lineup. With Sanders pulling Clinton to the left and Cruz pulling the Republicans to the right, the expanded policy range will survive the individual candidates, as will the populist discontent.

Many expect the markets to calm down as the election progresses, but from where I sit, these trends look poised to continue. They may even become more pronounced. If either side is forced to commit to ideas that are perceived as damaging to business (which is quite possible), the election will become even more central to market performance.

In short, things seem unlikely to calm down. Expect volatility to continue through the election—and probably well beyond.

 

This article was written by Brad McMillan from Forbes. This reprint is supplied by BNY Mellon under license from NewsCred, Inc.  

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally.  This material does not constitute a recommendation by BNY Mellon of any kind.  The information herein is not intended to provide tax, legal, investment, accounting, financial or other professional advice on any matter, and should not be used or relied upon as such.  The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon.  BNY Mellon has not independently verified the information contained in this material and makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this material.  BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material.