Where Would Stocks Be Now If Hillary Clinton Were President?
January 18 2018 - 12:44PM
Dow Jones News
By James Mackintosh
What if Hillary Clinton had won? A year on from the inauguration
of Donald Trump as president, Democrats are if anything more upset
than they were then. Investors, not so much. So, where would
markets be if Mrs. Clinton, not Mr. Trump, were in charge of the
presidential Twitter account?
A few things are clear. There wouldn't have been a huge
corporate tax cut. Small business confidence, based on hopes of
less red tape, wouldn't have leaped to the highest since Ronald
Reagan's first term as president. Banks wouldn't be expecting an
easy ride from regulators. And there would be a lot less fiery
rhetoric from the White House.
But let's look at the details. Many of the market-moving changes
since the U.S. presidential election would have been just the same.
Most important among them: The global economic rebound started
before voters picked Mr. Trump, and would surely have continued.
That rebound has driven up stocks and bond yields world-wide, and
the U.S. is only in the middle of the performance table. From the
day before the election, Italy, France, Germany and emerging
markets have beaten U.S. stocks in dollar terms, including
dividends, while Canada lags well behind.
Finding the cause of any given price move in a market with
millions of participants is an imprecise art, and it is easy to
confirm your beliefs. After all, Quinnipiac University polling
shows 65% of Republicans strongly approve of the way Mr. Trump is
handling the presidency, while 86% of Democrats strongly
disapprove. Every fact is seen through partisan glasses.
Yet, even die-hard Clintonites are hard-pressed to argue that
stocks would be higher if Mrs. Clinton sat in the Oval Office. Lady
Lynn Forester de Rothschild, who runs one of the Rothschild family
investment companies, E.L. Rothschild LLC, hosted high-profile
fundraisers for her friend and was distraught when she lost the
election, but accepts investors have welcomed Mr. Trump's
policies.
"The market's definitely liking what Trump is doing," she says.
"For now."
Mrs. Clinton wouldn't have focused on tax cuts and deregulation.
The corporate tax cuts will boost earnings by about a tenth,
supporting stock prices and boosting returns from U.S. investments.
Gains from deregulation are hard to quantify but should help small
businesses and banks the most.
Immediately after the election, investors priced in much of the
Trump agenda, with smaller companies, banks and companies which pay
a lot of tax (and so would benefit most from cuts) far
outperforming the wider market for a few months. Yet, much of it
didn't last.
From the election to Wednesday's close, the Russell 2000 index
of smaller companies and the S&P 500 both returned 35%,
including dividends. Both were great investments, but there was no
extra benefit for smaller-company investors. Stocks outside the
U.S. made the same 35%.
High-tax companies have done well since the tax cuts gained
support in the fall, but according to Goldman Sachs have exactly
matched the S&P 500 since the election.
Surely shareholders in banks, at least, can give Mr. Trump
credit for their whopping 57% return? Even here the waters are
muddied by rising bond yields. Bank shares have moved closely with
10-year Treasury yields, which are entirely unaffected by talk of
lighter regulation. Much of the bank share-price gains are down to
the same prospect of higher inflation and higher interest rates
that pushed up bond yields.
So would inflation and interest rates be lower under a
Democratic president? It is possible. Mr. Trump's election enthused
CEOs and small-business owners, and there is typically a link
between them feeling positive and stronger hiring and capital
expenditure. On the other hand, there has been a similar pickup in
hiring and corporate investment in other countries. The U.S. would
have gained from the same global growth pattern under Mrs. Clinton,
too.
"Relative to what's happened I'm not sure the economics would be
that different [under Mrs. Clinton]," said Jan Loeys, senior
adviser at J.P. Morgan. "The rebound in the rest of the world would
have happened anyway."
The technology sector adds to the confusion. Silicon Valley
poured cash into Mrs. Clinton's campaign, and tech shares tumbled
along with other expected Trump victims such as Mexico and
Obamacare-linked stocks after the election. This makes sense:
Leading tech companies already have low tax rates, so gain little
from tax cuts, and will be hit by Mr. Trump's clampdown on visas
for skilled foreign workers. Yet, the tech sector rebounded and has
returned 50% since election eve. Perhaps it would have done even
better if it had its favored candidate in the White House, and so
pulled up the S&P 500 even more.
What of the future? Vincent Mortier, deputy chief investment
officer at France's Amundi, worries that Mr. Trump is creating
long-term risks for short-term gain. Tax cuts boost stocks now but
could worsen inequality and so put future political stability at
risk. Deregulation around energy raises the danger from climate
change. And nationalist talk makes an eventual trade war more
likely.
America under Mrs. Clinton would have had no corporate tax cut
and no deregulation, and probably be a bit less lucrative for
investors. But it would be wrong to give Mr. Trump much credit for
the faster economy last year, and it is many years too early to
know if his policies will provide a lasting boost.
Write to James Mackintosh at James.Mackintosh@wsj.com
(END) Dow Jones Newswires
January 18, 2018 12:29 ET (17:29 GMT)
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