Election's Impending Market Effects

SMITH BRAIN TRUST — Though polls show Hillary Clinton losing ground to Donald Trump, her advantage in the betting markets continues. Ireland-based PaddyPower still shows Clinton with a 75 percent probability of winning, despite an alert from FBI director James Comey that the Clinton email investigation still has life.

If elected, Clinton would work to revamp Obamacare and go after drug companies for suspected overpricing. The Federal Reserve also would announce an interest rate increase in December that would assist the banking sector. These are examples of how the 2016 U.S. presidential election would move market sectors, says finance professor David Kass at the University of Maryland’s Robert H. Smith School of Business. Kass recently joined SiriusXM Business Radio’s “Knowledge@Wharton” show (Listen to the segment here) to discuss a range of election effects with economists from Pennsylvania and Johns Hopkins University. 

The Fed's Timing: Kass said the Federal Open Market Committee would not want to influence the election outcome, yet it wants any market reactions to the election out of the way. So the Dec. 13-14 Federal Reserve meeting several weeks after the election would make a more appropriate time for the Fed to act. A December timeframe would also allow the Fed to respond to forthcoming unemployment numbers and a late-November GDP estimate for the third quarter. “Financial futures markets are indicating an over-80 percent probability of a December rate increase,” Kass said.

Health Care Proactivity: Don’t overlook Clinton’s 1993 work, as First Lady, to reform healthcare in what turned out to be the direction of the Affordable Care Act, Kass said. “She’s very knowledgeable in this area, and working with Congress, she will come up with a fix or improvement to Obamacare.” Pharmaceutical companies and stocks could be in the crosshairs of a Clinton Administration, also. "The Clinton campaign has taken a very aggressive position against pricing of pharmaceutical drugs,” Kass said. “There have been some abuses that have made the media in the past year. And there may be some effort made the in the direction of putting pressure on pharmaceutical companies to either lower prices or reduce price increases in the future.”

Wall Street Rally: If Clinton’s elected without any post-voting controversy, there would be a "relief rally" on Wall Street, Kass said. "The market right now, though it’s fully valued, is not overvalued," he said. "There’s still room for growth."