Clinton v Trump: forget the polls, follow the money

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Few institutions have a better track record calling presidential races than the U.S. stock market. At the moment, it’s sending information that counts against Democrat Hillary Clinton.

The performance of the S&P 500 Index has signaled the outcome of every presidential election since 1984, according to an analysis by Strategas Research Partners LLC. A gain in the benchmark for American equity in the three months prior to the vote has seen the incumbent party win 86 percent of the time since 1928. Right now, the benchmark gauge is down 3.6 percent since Aug. 8 with just a week until the vote, a fact that in isolation augurs well for Donald Trump.

In simple terms, people are putting their money where they believe it will be best looked after in the event of a ‘more likely’ Trump win.  

Logically, the stock market’s record of prescience is derived from its sensitivity to the economy, with falling shares potentially correlating with consumer discontent that might break in favor of a challenger.

While this year’s signal ranks with the weaker ones historically, it comes as growth in gross domestic product is sluggish and follows the biggest monthly retreat in consumer confidence in a year. Some analysts also wonder if Federal Reserve stimulus has made stocks a less reliable signal of economic health than they were in the past.

“People may be saying ‘I think Clinton is going to win,’ but people are not putting their money to work on the fear of a Brexit like event,”

Whereas a few weeks ago business was confident enough to predict a Hillary victory, now it has moved into the territory of “too close to call”.

I always keep half an eye on the NZ Stock market in the months leading up to a General election, and even if there is a change in government on the way, more often than not, the market stays stable.  Business, like everyone else, likes predictability.

It’s only when things get this crazy that you get this clear hedging behaviour.

A week to go.

Then we’ll know.

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Bloomberg

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