Historically, the US market has tended to fall in the final year of a president’s second term. But the rhetoric and uncertainty of the electioneering means increased short-term market volatility, according to Fidelity International.
That said, these aren’t hard and fast rules, and history does not always repeat itself.
This year is unique in many ways; there is no presidential incumbent running for re-election and the current vice president is not a candidate, so whoever wins will be new to the office.
Industries affected by the election
At this early stage, it is difficult to assess which sectors and companies are going to benefit from each candidate’s policies.
"On the whole, the short-term volatility in the run-up to the election can create buying opportunities."
It is likely that there will be further clarity when the real campaign starts with drug pricing, US defence spending, and financial services regulatory reform set to be the topics most in the spotlight.
At a broader level, there is also speculation around how each candidate’s policies will impact the pace of monetary tightening by the Federal Reserve.
Drug pricing
Pharmaceutical and biotech stocks have suffered from downwards pricing pressure following comments from Clinton last autumn and this may continue to weigh on performance. But at the same time it may also provide some interesting entry points.
It is perhaps worth remembering that the Republicans control the senate and are likely to be lukewarm, at best, towards new legislation on reducing drug prices.
This reluctance to support healthcare reforms was demonstrated in their opposition to ‘Obamacare’, ultimately resulting in a much watered down version of the original proposals.
As for Trump, like many of his policies, the messages on healthcare are somewhat inconsistent.
He has spoken about the need for drug price negotiation on the campaign trail, but this has not subsequently featured in his ‘Seven Point Plan’.
He remains a Republican deep down and this means that significant reforms in healthcare appear unlikely. Perhaps the most likely outcome from this bad publicity during the campaign is that the healthcare industry self regulates drug prices more sensibly.
US military spend
Defence budgets are also likely to be as subject of debate, but meaningful cuts are perhaps unlikely in the context of ongoing global security concerns. For instance, the US has already set out plans to quadruple the budget for European defence in 2017 in the light of ‘Russian aggression’.
Instead of calling for yet another round of defence budget cuts, both front-runners seem to be more focused on proposing better transparency and efficiency within the US military.
Financial services regulatory reform
It is more than seven years since the height of the financial crisis, but banks have struggled to restore their reputation in the eyes of the US public. This has made them a popular ‘pantomime villain’ for the campaign trail.
Most candidates have proposed stricter regulations and Democrat Bernie Sanders has even called for a bill to recreate the ‘Glass Steagall Act’, which separates investment banking from retail banking.
Such extreme reforms are perhaps unlikely given the regulations already brought in under the Obama tenure, especially when taking into account the improved health of US banks balance sheets.
Minimum wage
On the flip side, there has been increased noise about the raising of the minimum wage during the campaign trail.
In the US, the Federal minimum wage has not increased since 2009 and a rise may lead to acceleration in wage growth, which could force the Federal Reserve to raise interest rates at a faster rate.
Historically, interest rate rises have supported earnings growth for banks and insurance companies.
