For many Americans the US election was a chance to elect the lesser of two evils. There was a time that the result was too close to call, this however seems a distant memory. With polls and experts saying Clinton has an 80% chance of winning and some of the major bookmakers already paying out over £1m on Clinton winning, it seems all but over.
What does another Clinton administration mean for the markets?
Many experts predicted a US Election Trump win would cause a major sell off in the indices. With the S&P and DOW hitting record highs this would have been the perfect opportunity for investors to take profit and re-asses the global outlook with the leader of the free world being such an unknown political quantity. Clinton on the other hand seemed to be the darling of Wall Street, with many fortune 500 companies backing her campaign (not one single company backed Trump), so does this mean stocks will rally?
The problem with the stocks right now is that they are the only place to put your money to get any sort of return so they are clearly overbought. Investor no long see stocks for what they are, a ‘risky’ investment and expect the FED, BOE and ECB to step in to ‘fix’ any problems. The issue with this is that this can only last for so long. History teaches us that. In normal market conditions there is a correction on average every 6 years or so. Nearly a decade after the credit crunch we have certainly passed the point of no return now, for any reasonable correction, due to the extraordinary measures taken by the central banks such as ultra-low rates and QE. This means the next crash, correction whatever you want to call it will be unlike anything we have really seen before.
In my opinion once Clinton is made President, this is ‘known’. For me and many out there Clinton was always going to be elected so this is ‘priced’ in to the market. The logical thing to happen is once the result is known is that the stocks react in a positive manner. However as many investors will have pushed the markets up prior to this highly anticipated outcome I see a sell off inevitably happening in the stocks.
I don’t see a major sell off to start. I would say the S&P breaks below 2100 and bottoms out in the short around or just below 2000. In the medium term after some consolidation around Q2/3 2017 I see a major sell off in the S&P. I see the S&P hitting 1906 then smashing the lows at 1807 then settling around 1610.
I see the EURO post article 50 being severely tested. The risk on contagion of other member states will be high, and once the wheels do not fall off the UK’s trade deals I see the GBP regaining ground above 1.30 (GBP/USD) and the EUR/USD Breaking below 1.05000 and really starting to eye up parity at 1.0.
All in all the US election is a done deal by the markets reckoning. I think 2017 will be the year the world wakes up and resets some of the central banks free money financial fix sticking plaster.