It’s just a little ironic that a politician obtuse business person who boasts about his tax plans to support America’s biggest corporations would also be the person who the market, aka big business, distrusts most.
According to The New York Times’ Economic View writer Justin Wolfers, “stocks may lose 10 to 12 per cent of their value if [Trump] wins the November election.”
During an election cycle we see in particular, what affect sentiment has on the markets when a politician makes bold economic statements, or demonstrates how poor of a potential leader they would be.
The stock market is ruled by several things including investor sentiment, activist investors and of course, real time data and a company’s financial results. During an election cycle we see in particular, what affect sentiment has on the markets when a politician makes bold economic statements, or demonstrates how poor of a potential leader they would be. Real time market reaction is based on the fear of what would happen if a particular person were to gain power over the economy, and in this case, that person is Donald Trump. Clearly, the opinion of the markets is in sharp contrast “to [his] claims that his presidency would be good for business.”
Before I go further to explain how we know this, let me delve into market sentiment. Sentiment, simply put, is investors making decisions to buy or sell based on fear or excitement for the potential of a stock, and can unreasonably drive markets one way or the other. Often times sentiment does not match the reality of a public company. For example, a healthy, growing company may face a declining share price based simply on the fact that there is doubt around the experience of the CEO, or the market may see a company’s share price soar simply based on the fact that investors see future potential for a natural resource, when the company hasn’t proven its ability to provide said resource. Sentiment is not based on facts, it is based on human emotion.
In this case, collective market sentiment says that a Trump presidency would not be good for business.
In this case, collective market sentiment says that a Trump presidency would not be good for business. As last Monday’s presidential debate took place, and it was clear that Clinton was the winning candidate, markets rallied in real time as “broad stock market gauges” like the S&P 500 index saw their values increase. These gauges are set up with intention to provide the temperature of the overall market. “When Mrs. Clinton pummelled [Trump] over his tax returns, stocks rose. And this pattern of stocks rising in response to Mr. Trump’s miscues continued through the evening.”
The article goes on to explain that according to political prediction markets, the stock markets would expect to see stock prices to be “10 to 12 per cent lower if Mr. Trump wins than they will be if he loses.”
To sum it up, Wall Street is in effect showing that if Trump were to be elected, “it expects the profitability of America’s largest businesses to be about 10 to 12 per cent lower on average in the future.” Particularly entertaining interesting when Trump is boasting about his corporate tax cut. “Either the markets don’t believe he’ll deliver on these tax cuts, or they believe that the rest of his economic [plans] will do enough harm to more than offset the benefits of lower taxes.”
Read the full article, published September 30th, 2016 by Justin Wolfers, here.
Feature image via CNN.
