FYI | Nov 02 2016
By Peter Switzer, Switzer Super Report
Will the market be trumped down 10% thanks to the FBI?
We’ve been trumped! There’s no two ways about it and the big question is: will these FBI emails on Hillary Clinton help Donald Trump become US President and sink the stock market by 10%? Or more!
On Thursday night, I asked CMC’s Michael McCarthy if CMC Markets had a view on the possible Trump-win effect on Wall Street and global stock markets. I advanced my guess with a 5% suggested answer but he responded with 10%! This quite staggered me but as history shows, market surprises lead to a “sell first, ask questions later” mentality.
Of course, until Friday US time, Hillary looked home and hosed as the first female US leader of the free world but then came these possibly embarrassing emails that Donald instantly played up to the hilt in the unbelievably unique selling style that has created the brand name called Trump.
Prior to this surprise play from the FBI, the latest CNBC poll was headlined: “Clinton nearly doubles lead over Trump in latest CNBC survey.” And then the Yanks got those very solid economic growth numbers, which led the business website to lead with “Polls tighten for Trump but along came GDP” on Friday afternoon.
The FBI helped cut Clinton’s lead from 12 points to 4 in the Washington Post/ABC News tracking poll but GDP growing at 2.9% instead of the 1% Trump is always campaigning with and complaining about, should aid Hillary’s cause.
“This is still another reason why Trump will probably lose. The economy is in decent shape, so decent that the Fed will have to raise interest rates later this year,” said Greg Valliere, chief global strategist at Horizon Investments. (CNBC)
But this is speculation by just another expert and so why wouldn’t professional traders and fund managers be setting themselves up in case Trump wins.
And be clear on this: if he starts to lead in the polls markets could sell ahead of the election. Right now, Reuters’ expert John Noonan, talking on the Sky News Business Channel this morning, says a lot of fund managers have increased their cash holdings, fearing what a surprise Trump win might mean.
Of course, a Trump win does not mean economic Armageddon but it would mean a lot of bets placed on a more normal and predictable world with a Clinton Presidency, a sensible OPEC outcome for the oil price and a December interest rate rise from the Fed, would now have to be reworked — big time! It would mean selling some positions and setting up new ones and then there has to be a reaction from the Fed and other central banks.
Recall what happened with Brexit. The Guardian’s headline on June 24 says it all “Brexit panic wipes $2 trillion off world markets.”
On that day, the Dow Jones slumped 608 points (or 3.4%), with nearly all stocks down but financial ones were the worst hit. Recall this was something in Great Britain and the EU, so imagine what Donald Trump’s economic and political curve balls could do to Wall Street after November 8 if Donald does a Brexit!
The great pity is that the GDP growth number at 2.9% should have left us poised to see US stocks go sky high after the election, provided OPEC did not do anything silly and the December rate rise happened on schedule and was greeted with a positive market reaction, as many market experts expect.
Then throw in a Santa Claus rally and it would have been a great start to the New Year, where stocks have a historical knack of going up in that month.
So will Donald trump this rally and virtually Grinch our Christmas?
Let’s look at the arguments for being wary about a Trump victory. Here goes:
- Democrat fatigue has said this was an election that the Republicans should win but they selected Donald!
- Trump is perceived as the best candidate for the economy by Americans but not Wall Street.
- Clinton’s poll numbers go up after debates but Trump gains ground in between.
- Helmut Norpoth’s “Primary Model” — a very reliable predictor — says Trump wins and puts the odds of this above 87%!
- After the FBI emails Trump’s popularity spiked 30% on the Predict It poll.
- The MogAI analysis, which has got the past three US elections right, and is based on some artificial intelligence and social media theory of Sanjiv Rai, has selected Trump as the winner!
- And Master Feng predicted a Trump win over a month ago on my TV show and he’s had a great track record too!
What am I going to do?
I am going with my heart and staying put on the basis that I will punt that America can pass this political IQ test and reject Trump. But as you know I’m a thrill seeker and a long-term investor.
That said, I will hold some cash for any buying opportunity that a ‘trumping’ of the stock market might bring. Don’t let it be said that you haven’t been warned.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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