What Might an Election Year Look Like for the Stock Market?


What Might an Election Year Look Like for the Stock MarketAs we enter into 2016, we enter into a major time for the direction of our country.  It is the Presidential Election and this one promises to be a real doozy.  We have a dynamic here that we haven’t seen in a long time.  The dynamics of Donald Trump change this from everyday politics.  So, how does this affect the stock market?

First, the stock market has been in the doldrums for a very long-time going up and down and not gaining really any traction.  In fact, it has been doing so since November 2014.  When the stock market goes in a directionless trend such as it has over the last 13 months, it says one thing – there is a big move coming.  The challenge is knowing whether it is up or down.

The stock market acts like a crystal ball.  It typically reacts either negatively or positively well before an event takes place.  It is a forecasting machine.

So, let’s go through some various scenarios and speculate.  How the market performs leading up to the nominations might tell us a lot about who the candidates might be.

A Trump Nominee – I would speculate that this will be market positive.  Wall Street would welcome a potential pro-business candidate.  A Ted Cruz VP selection would be even more palatable. His VP selection might be the most crucial decision he makes and could determine whether or not he can beat the Clinton Machine.

A Trump Primary winner and a Republican snub – You can’t rule out the scenario where Trump wins the primaries yet loses the nominee.  It is no secret that the Party would rather have a career politician as well as the sheer fact that Trump makes them nervous.  If that were to occur, I would predict Trump goes back on his word and runs independent to blow things up.  That could create a great deal of uncertainty and a Clinton Presidency for sure.  Market would probably initially react negatively.  However, I think it would ultimately react the way it would if…….

A Clinton Presidency – I don’t think that this moves the market one way or another.  This would act as an extension of what we have had for 8 years.  However, the amount of regulation on Wall Street would be a wildcard.

A Bernie Sanders Nominee – I think that this would initially freak out the market.  After all, he is ready to turn us into a full blown socialist country as quickly as he could say the oath of office.  Most people say there is no way.  He does have a strong grass roots campaign underway.  However, markets might still come to the conclusion that he isn’t electable.  This of course would assume that Clinton’s past catches up with her and creates a scenario where she doesn’t get the nomination.

There is no hard and true way of predicting the effects of the election.  Remember 2008, the financial crisis, was an election year.  2012 saw a big decline into the election and then a big rally following the election.   There are a lot of moving dynamics going into 2016.  One thing for sure, there probably will not be any dull moments!  This, you have to be comfortable with the risk that you are taking.

If you are concerned about the risk you are taking, let’s do a risk analysis so that you know.  Feel free to email at bob@prudentmoney.com for more information.

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