Donald Trump

Does the Market Care Who Wins the White House?

With either Donald Trump or Hillary Clinton about to become president, why is the stock market soaring?

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Trump
Andy Martin Jr./ZUMA Press/Newscom

Our presidential election is a choice between a socialist-leaning, anti-free-trade, tax-and-spend Democrat, Hillary Clinton, and a reckless, anti-free-trade Republican, Donald Trump, who has been running around criticizing Hillary Clinton as too pro-Wall Street.

So why is the stock market, which measures the expectations of future earnings by American businesses, soaring?

There are at least three possible answers.

The most hopeful one is that neither Clinton or Trump would be as bad as some fear, and that either one might be an improvement over President Obama.

Mr. Trump has been careful to stress that while he wants better trade agreements for America, he doesn't oppose free trade. And while he has accused Hillary Clinton of being controlled by "global financiers," plenty of heavyweight and credible Wall Street types—Wilbur Ross, Steven Mnuchin, Carl Icahn—are in Mr. Trump's corner. If Mr. Trump manages to get elected and get his tax cuts through, it will be good for the American economy. A President Trump would appoint reasonably pro-business, anti-regulation (though immigration is a question mark) judges and administration officials.

As for Clinton, if she is elected she'll almost certainly be constrained by the lack of a 60-vote Democratic majority in the Senate. The same "global financiers" that Trump has been trying to scare voters about—i.e., her speaking-fee paymaster Lloyd Blankfein of Goldman Sachs—will have Clinton's ear enough to assure that she doesn't follow her instincts and go the full Hugo Chavez. The last time we had a Clinton presidency, back in the 1990s, the policies that eventually emerged from the combination of Bill Clinton and Republicans in Congress—Nafta, a capital gains tax cut, welfare reform—were reasonably pro-growth.

The other possible explanations are not as substantively hopeful, though they are somewhat bullish from a market perspective.

If you take into account the dollar's decline against gold, the stock market still has a way to run before even approaching its value in 2008, when the presidential choice was between Barack Obama and John McCain, who wasn't exactly the second coming of Ronald Reagan, either, from a growth perspective. With dollar-denominated housing, education, and health-care costs all soaring, the stock market rise isn't so much policy-related optimism as an expectation that you'll need more dollars to buy a single share of stock in whatever company it is you are buying. I'm not advocating a weak-dollar policy; I like a strong, stable dollar. But it's easier to make sense of the rising stock prices if one also keeps in mind the declining value of the dollars in which the stock prices are quoted.

Relatedly, the stock prices may be expressing an expectation about interest rates, which is that they are going to stay pretty low for pretty long. By this view, neither a President Trump nor a President Clinton will meaningfully reduce the deficit or debt or stimulate the economy through fiscal policy. As a result, the onus will be on the Federal Reserve to keep interest rates low to enable the government's borrowing and to keep the unemployment rate at politically acceptable levels. If savers can't earn reasonable returns from savings accounts or bonds, they'll put the money in the stock market.

If the stock market starts to tank between now and election day, you'll doubtless read stories blaming Trump or Clinton for the decline. Perhaps they are to blame for the fact that the market isn't roaring even higher. I'm as unenthusiastic about both presidential candidates as most of the rest of the commentariat and electorate. But I try to maintain a mind open to incoming data that might cause me to question my opinions. In this case, Mr. Market may just be sending a message that neither Mr. Trump nor Mrs. Clinton will be as bad as we think.

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  1. The market is soaring because Wall Street expect their candidate (Clinton) to win. They overestimate her campaign skills as usual, and underestimate the visceral appeal of Trump to disaffected voters.

    1. So you’re going to make a killing with those December shorts you’ve purchased, right?

      1. Shorting Tesla might be a good plan.

    2. Clinton would be in serious trouble against an average R candidate, but luckily for her she’s running against Trump. She doesn’t have it in the bag, but I think she’s the clear favorite for good reason, and I do not think that would be the case against almost any other Republican candidate from this year (possibly excepting Cruz).

      1. My take is the opposite, that Clinton vs Trump is too close to call, but Clinton vs Cruz would be a blow-out for Clinton. Cruz would be painted as an extreme far-right Christian Taliban monster who would nuke the gays in Iran and hang them here. Even more horribly, he’d cut off their Social Security benefits as well. (They’d do the same to any other R, with at least some success, but against Cruz it would stick better.)

        One of the “secrets” of Trump’s popularity is that he’s not a conservative, but an anti-anti-conservative. There are *lots* of voters who hate liberals but fear conservatives (of both the small-government and social-values types), and voting Trump is a safe way for them to give the finger to liberals without supporting those scary extremist right-wingers.

    3. The correctly predict that the election outcome is certain victory for Clinton.

      The market hates uncertainty. Fortunately, there isn’t any.

      1. LOL – Guess you were long into the Brexit vote too and lost your ass huh? Market didn’t think there was any “uncertainty” there either as it rose higher…oops.

    4. The market is soaring because we are in a freaking asset bubble. None of these markets has the slightest thing to do with any reality other than the ability/willingness for central banks to keep giving free money and easy terms to Wall St and banks. And since none of those recipients has the slightest clue about what to do with that money other than to keep buying financial assets and houses, that is precisely what they will continue to do until the free money runs out. And when it runs out, they will start threatening taxpayers with bringing the system down again unless they get a bailout so they can transfer their private TBTF debts to the public balance sheet.

      1. The market is soaring because Yellen isn’t raising rates… it’s that simple

  2. I’ll be interested to see the polling once the non-indictment of Hillary and the riots and police shootings soak in. I can’t imagine they will help Hillary’s numbers.

    1. Will Trump benefit from those events as much as he benefited from the Muslim Democrat ISIS fan who executed dozens of people in Orlando?

      1. Yeah he was standing on those bodies before they were even dead…. by rightly pointing out who the enemies of western civilization are, besides the state.

    2. I’ll be interested to see the polling once the non-indictment of Hillary and the riots and police shootings soak in. I can’t imagine they will help Hillary’s numbers.

      And no president has ever been re-elected during a weak economy and record-high gas prices.

      I think we’re in post-modern America where none of those old rules apply.

    3. I’m not sure it will have much of an effect. Orlando was supposed to swing people in Trump’s favor but it didn’t. As for the non-indictment, that could go 2 ways:

      1. People could be mad she didn’t get indicted and/or think that the director’s criticism of her conduct is enough to not vote for her.

      or

      2. People could conclude that since she didn’t get charged it’s not that big a deal (I don’t agree with this, but many people clearly do)

      And keep in mind that the only thing relevant here is people whose stance changed after the non-indictment. I think most people who cared about the email scandal either way made up their mind well before.

    4. The police shootings and the harmless-black-person shootings pretty much cancel eachother out.

    5. I don’t think either of those will have much effect, actually. For the stronger Hillary supporters the non-indictment is a case of a McCarthy-style witch-hunt being defeated by the sane adults in the room, and for the weaker supporters it’s a case of “Vote for the crook. It’s important.” As for the riots and police shootings, Trump will get traction from things like the Orlando shooting, but not so much from shootings and riots by people whose ancestors were imported into this country prior to 1808.

  3. A similar piece here: http://freakonomics.com/podcas…..broadcast/

  4. Where else would anybody put their money? In a zero percent savings account?

    1. I’m going pay the Dutch to hold my fortune.

      http://www.investopedia.com/ar…..r=mediafed

  5. The stock market votes Hillary. I was watching the S&P 500 during Comey’s non-indictment announcement last Tuesday. For the first twelve or so minutes, when Comey was describing what Clinton did, the index was dropping. As soon as he switched to the “no criminal conduct” part of his speech, the index shot up immediately.

    1. Having one of the major-party candidates for president get indicted is probably not good for market stability regardless of who it is.

  6. Since US policy will be increasingly coming from the courts (an ironic outcome for conservatives who chose to make Congress grind to a halt by throwing their stupid radicalism into its gears), it’s pretty important who the next president is. That’s not even talking about how one of the candidates is a racist, mentally ill incompetent.

    1. racist, mentally ill incompetent.

      Honestly not sure which one you mean. Racist? Well, Trump has that immigration thing, but Hilly went all “super predator” while helping hubby turn the cops into little anti-black military units. Mentally ill? Think both have megalomania and narcissism going on, with an extra dose of paranoia on the Clinton side. Incompetent? One’s got a history of bankruptcy, the other fucked up Libya. It’s kind of a wash.

  7. RE: Does the Market Care Who Wins the White House? New at Reason
    With either Donald Trump or Hillary Clinton about to become president, why is the stock market soaring?

    Do not fret fellow comrades.
    If Heil Hitlary wins the executive position, she will destroy all vestiges of capitalism. She will wisely do this in increments as not to scare the unenlightened collective.
    If Trump the Grump wins, he will ensure only his investments are immune to the additional needless and onerous rules, regulations, red tape and tax policies.
    Capitalism will finally be flushed down the toilet of history, and the Glorious People’s Revolution will finally become a reality in our country regardless of which idiot is put into the White House Dascha.
    The realities of confident future without the perils of capitalism is finally here.

  8. The market is soaring because we’re the prettiest horse in the glue factory.

    Where would you put your money with the ten year treasury trading at less than 1.5%?

    Take a look at this chart:

    http://quotes.wsj.com/bond/BX/TMBMKDE-10Y

    Look at it!

    Feel it.

    What does it mean?

    It’s a rhetorical question. It means there’s no growth in sight and people will pay the government to hold their money for them.

    The Fed needs to start selling its treasuries or at least announce that they’re going to start buying less when they roll over. More people should be parking their money in bonds–and they would if the interest rates were higher. The U.S. stock market isn’t supposed to be such a huge safe haven by virtue of the currency in which it’s denominated.

    Prettiest horse in the glue factory. We’ll be slaughtered eventually, but we’re the safest place to be for now.

  9. Because Moar central banks, Moar QE and maybe some helicopter money thrown in for good measure.

    1. Speaking of helicopter money, I’m actually shocked that Congress and the President haven’t decided to give every social security recipient $100 or $200 to make up for the “no increase in 2016 due to low inflation.” Don’t they know there’s an election coming up in November? Stimulus, baby!

      1. Dubya gave everyone $300 in 2007.

  10. I’d love for somebody to make the counterargument.

    The ten year is still periodically rallying at under a 1.5% yield.

    Why shouldn’t the Fed announce that they’re going to start buying less treasuries rather than just automatically rolling them over. They could even announce how much less they’re going to buy on a quarterly basis a couple quarters in advance so there aren’t any surprises.

    1. But $ have already been disappearing into what amounts to a hole for some time. And then what difference will it make who’s holding the debt?

  11. Markets care, the Commerce Department makes an Endorsement, the Banks make Donations. Noteworthy is the markets adapt. Extremely well in most cases.
    The biggest influence is consumption. Consumption climbs, anything else doesn’t matter, the markets/commerce participants will do just fine
    Trumps Idea of a wall, would be built, BY AMERICAN CORPORATIONS IN MEXICO.. would do fine except for a brief time of spending revs.
    revs that continue to climb
    One can say, that with ‘Globalization, the Corporations have ignored Global Security. The Corporations fence their properties, but now, it is time that a Global security is needed.. ‘The Wall’, a necessity for Corporations, American, to take responsibility for, to protect American “Markets”
    Does a security system within a Corporations American property, break their bank? Of course not.. it is the price of doing business.
    Such is the case for Trumps modus.
    Opposite is the case for Hillary. This is something “markets”(Corporations) no doubt favor as any short term expenditures are not on her ‘do list’ as to Corporate responsibility… regardless of her promises.

    There in the problem lays as to markets, the markets want one way linear acceleration in revs accumulation, While this is good thing, it isn’t everything… and substantially, if a Corporation gets everything it wants.. and all Corporations follow, social order will never be what the citizens want as a whole.

    Markets care, one might also say, citizens want Markets to care more.

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