The Path to 270 & Stock Market Reaction
Don’t forget to vote!
Thanks to NBC, ABC and FOX in Connecticut for having me on regarding the election. Each segment was very different and offered new information. The first two interviews are below and I will post the FOX one as soon as I have it.
It’s been a long two years since the midterm election and I think I can confidently state that the entire country has election fatigue. I would guess that the only ones sad about the election being over are the cable networks and social media platforms as they have seen enormous surges in viewership and usage.
Whether you like it or not, we are going to elect a new president today and the markets will react. If you are on Twitter, I will post comments as states are called and the Asian markets react along with the S&P 500 futures.
Trump’s Path to 270
Looking at my own electoral map, Trump needs to almost run the table in the statistical dead heat states to get close or over 270. Florida is the absolute must, live or die state for Trump while Clinton can lose it and still win handily. Trump then needs North Carolina, Arizona and Ohio to just get him to 259. From there, he probably needs two more blue leaning states, assuming that Michigan and Pennsylvania stay blue as I think they will. The only ones realistically left would be New Hampshire, Colorado and Wisconsin. That’s an almost insurmountable challenge.
If Trump has any chance to become #45, it would likely come as a result of neither candidate achieving 270 electoral votes and the contest would then turn to the House of Representatives where the GOP and Paul Ryan have control. Should this very unlikely scenario unfold, it would be ironic that Donald Trump would need help from the republican he has most battled with and attacked since becoming the candidate to become leader of the free world.
Split Congress Likely
Turning to Congress which matters for the markets, the GOP has a 90% chance of retaining control of the House and thwarting Clinton’s agenda, should she win. The Senate, on the other hand, is essentially a toss up and the nod goes to the democrats, assuming Hillary Clinton is victorious. My count has it 51-49. If that’s the case, it will be extremely interesting to see how President Clinton, a quiet staunch ally of Wall Street, and new Senate Majority leader Schumer, also a Wall Street supporter, deal with Liz Warren and Bernie Sanders regarding the mighty Senate Banking Committee.
How Will Stocks React
Below you can see the possible scenarios and how I believe the stock market will react. They appear as president, Senate and House.
- Clinton, democrat Senate, republican House (most likely scenario)
Stocks continue to rally for another day or so and then peak this week and gently pullback towards Thanksgiving before attacking 19,000 in December or January.
- Clinton, republican, republican (2nd most likely)
Almost the exact same scenario as above although the rally will be a bit more muted.
- Trump, republican, republican (3rd)
Stocks immediately pullback 4-6% to a bottom by Thanksgiving before gaining their footing for a strong rally into the New Year. All-time highs are seen.
- Clinton, democrat, democrat
The most unlikely outcome causes the biggest problems over the intermediate and long-term as the left agenda goes unchecked with major tax increases on higher income earners, significant increase in regulation and huge expansion of social programs. Stocks become very volatile over the next few weeks before rallying into the New Year. Bear market begins by Q3 2017 and stocks fall by 30-40% by the 2018 midterm elections.
Watch the Reaction Not the News
As I have always said, as an investment manager, I am much more concerned about market reaction to the news than what the actual news is. As such, I will be keenly watching which sectors lead and lag the rest of the week and during any weakness next week. Additionally, healthcare and biotech were decimated over the past few months into last Friday on the prospects of Hillary winning. While they are snapping back sharply this week, it will be interesting to see if their rally has legs or if it’s just a dead rat bounce. Banks have become a vital leader since the BREXIT low in June. Interestingly, it doesn’t seem like this sector is concerned about Liz Warren or Bernie Sanders attacking them or regulating them so quickly.
I will have more this evening on Twitter (@paul_schatz) and tomorrow right here.
Don’t forget to vote!
Regardless of the outcome, the greatest country on earth will still be here tomorrow…
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