In Case You Hadn’t Noticed, The Financial Markets Were Watching the Presidential Debate

Global investors waited with bated breath for the first of three US presidential debates between Democratic leader Hillary Clinton and Republican opponent Donald Trump. Stock market turbulence leading up to the debate was a clear sign that investors were becoming more concerned with the prospect of a Trump presidency. On that day, Bloomberg News came out with a new poll showing that the Republican hopeful had opened up a two-point lead on Clinton after being down more than 20 points months earlier.[1]

It’s certainly no surprise that the financial markets are cheering for a Clinton victory. This is less ideological and more practical. As an establishment candidate, Clinton represents stability – something Wall Street prefers. Trump, on the other hand, is widely considered to be a wildcard. Nobody knows what his presidency would entail. For that reason, many on the Street simply don’t want to try.

That paradigm was certainly on display Tuesday, September 27 – the day after the debate – when US stocks surged on the presumption that Hillary Clinton had crushed her Republican rival.

Several exit polls of likely American voters felt that Clinton was the clear winner in the Monday night showdown. One such poll conducted on behalf of CNN found that 62% of likely voters said Clinton had won, compared to just 27% who said Trump was the stronger candidate.[2] A separate poll conducted by Reuters/IPSOS showed that 56% of American adults felt that Clinton won, whereas 26% felt Trump did a better job.

According to the Reuters/IPSOS poll, 31% of likely voters said the debate actually improved Clinton’s chances of winning the presidency.[3]

Investors apparently cheered the outcome, with the S&P 500 Index climbing 0.6%, while a measure of implied volatility declined sharply.[4]

Ahead of the debate, stocks plunged. The S&P 500 Index declined nearly 1%, with then of its 11 main sectors finishing in negative territory.[5]

However, nobody should count Donald Trump out just yet. Investors are sometimes quick to forget the drubbing that President Barack Obama took in the first presidential debate against Mitt Romney back in 2012. It didn’t take long for the incumbent to launch a comeback and win the presidency in convincing fashion.[6]

Regardless of who wins the debate, we know the financial markets will be watching. This might have the potential to disrupt stocks, commodities, currencies and other financial markets.

The US vice presidential debate will take place on October 4. Clinton and Trump will return for round two on October 9. The third and final debate will take place on October 19, just weeks before the election. Americans head to the polls on November 8.

Investors shouldn’t be surprise by increased volatility leading up to the debates, as the market continues to price in the possibility of a Trump presidency. Trump’s campaign has gained traction in recent months, aided in part by Clinton’s health scare at a 9/11 memorial.

The next US president will be inheriting a shaky US economy. After a prolonged boom period, equity markets have also become unsettled, reflecting an uneasy global climate marked by weak growth and a commodity slowdown. As the US economy pivots to Asia, the next leader will be tasked with forging new partnerships and establishing new mechanisms for growth.

Historically, assets such as stocks and indexes have performed better under Democrats than Republicans. Since 1945, the average annual stock market return under Democratic presidents was 9.7%, significantly higher than the 6.7% return under Republicans.[7]

[1] John McCormick (September 26, 2016). “Trump, Clinton Deadlocked in Bloomberg Poll Before Key Debate.” Bloomberg.

[2] Jennifer Agiesta (September 27, 2016). “Post-debate poll: Hillary Clinton takes round one.” CNN.

[3] Chris Kahn (September 28, 2016). “Majority of Americans say Clinton won first debate against Trump: Reuters/Ipsos poll.” Reuters.

[4] Sam Bourgi (September 27, 2016). “S&P 500 Futures Rebound as Hillary Clinton Takes Round One of Presidential Debate.” Economic Calendar.

[5] Sam Bourgi (September 26, 2016). “S&P 500 Futures Drop Ahead of Presidential Debate.” Economic Calendar.

[6] Jennifer Agiesta (September 27, 2016). “Post-debate poll: Hillary Clinton takes round one.” CNN.

[7] Heather Long (October 28, 2015). “Democrats vs. Republicans: Who’s better for stocks.” CNN.

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