By Isha Varma
While the result of the Trump-Clinton face-off is unknown as yet, the speculations regarding the same are at its peak.
From Clinton’s email controversy to Trump’s comment on nuclear weapons, there has been a lot to fathom about the US Presidential elections 2016. One major feature of the Presidential election is the uncertainty and that is exactly what the financial markets don’t like. It creates an atmosphere of risk and fear of financial loss which is dangerous for businesses. Furthermore, the markets will have to adjust with the new ideology and personality of the new President.
According to a report by Merrill Lynch, on an average the first year of a new presidential term witnesses a rise in markets by 6% which is below the normal 7.5% average of all years since 1928. The markets seem to be quiet volatile at present. Political environment affects everyone’s investment behavior. There is conflict of interest between Democratic and Republican supporting investors. Some investors even hold on to the money or make limited investments so as to judge how the markets are reacting to the change and then invest accordingly. Some financial advisors and experienced investors are making strong statements which in turn might influence the investing decisions of the retail investors.
Donald Trump is expected to cut taxes by a large margin. Also, his strong remarks on countries like Mexico might affect the trade relations with these nations under his leadership. Hillary Clinton on the other hand has endorsed regulatory reforms which will prevent Wall Street from taking excessive risk. It has been experienced that the presence of Democrat Presidents has been good for stocks while Republicans are supposedly more business friendly. Also, a Republican President is likely to bring about more changes in policies and hence US financial markets could expect more fluctuations in case Donald Trump wins the elections.
With Trump leading in 168 states as against Clinton who is leading in 131 states, the markets around the globe have been tumbling. Japan’s Nikkei 225 Index dropped 2.4%, Hong Kong’s Hang Seng plunged 1.7%, South Korea’s Kospi Index fell 1.4%, Australia’s S&P ASX/200 lost 1.2%, Dow futures nosedived over 600 points, and the SENSEX crashes 1600 points. The US dollar sank against the Japanese Yen, a condition that will be unfavorable to Japanese exporters, and the Mexican peso plunged nearly 10% to record low versus USD.
However, the fact that stocks have gained under every President only except Nixon and Bush 43, should be a relief. Also it is known that investments in stock markets are usually good in the long run. Change in the economies in the coming months is inevitable. The consolation here is that the change might actually prove to be good.