In the polling places and on the airwaves, there remains a high level of uncertainty about who will be the next U.S. president. Not so on Wall Street and the markets.
Recent indications from deep-pocketed institutional investors as well as those who frequent prediction markets say Hillary Clinton will win. And it’s not close.
More than 70 percent of respondents to a recent Citigroup poll of institutional clients viewed the former secretary of state, first lady and New York senator as the likely 45th president. Just over 10 percent give Donald Trump the nod, while fellow Republican John Kasich is a few points behind. Democrat Bernie Sanders and Republican Ted Cruzbarely register. (The poll was taken before Sanders and Cruz scored big primary wins Tuesday in Wisconsin.)
The online predictions markets, where traders can place their bets on politics and a host of other events, tell a similar story.
On PredictIt, Clinton traded early Wednesday at a price of 59 cents a share, which equates to the probability participants give her to be the ultimate winner. Trump is at 17 cents, Sanders at 16 cents and Cruz at 15 cents.
“An awful lot of investors view her as the devil they know as opposed to the devil they don’t know.”
While there’s still plenty of time before the November election, markets are getting acclimated to the idea of a Clinton victory. Wall Street-related firms are Clinton’s biggest contributor group, giving her just over $21 million of the total $159 million she has raised during her campaign, according to OpenSecrets.
“An awful lot of investors view her as the devil they know as opposed to the devil they don’t know,” said Greg Valliere, chief global strategist at Horizon Investments and widely recognized as one of the leading experts on how what happens in Washington affects Wall Street. “It’s a true cliche: The market doesn’t like uncertainty.”
Prospective voters have considerably less certainty about who will win the Oval Office.
The RealClear Politics average gives Clinton a decisive 10.8-point advantage over Trump in a head-to-head matchup, but just a 3.1-point edge over Cruz while Kasich actually beats her by 6.3 points. Interestingly, Sanders fares even better than Clinton against the GOP candidates, holding respective leads of 16 percent, 9.8 percent and 1.3 percent.
Though Trump got routed in Wisconsin, PredictIt traders still see him as the likely GOP nominee, putting his price at 44 cents to 33 cents for Cruz and 17 cents for House Speaker Paul Ryan, who fares better than actual candidate Kasich, whose price is a paltry 8 cents. Clinton, who also lost badly in Wisconsin, still holds a commanding edge on the prediction market in terms of the Democratic nomination, with a price of 84 cents compared with Sanders’ 17 cents.
Amid the horse race, markets have been fairly immune so far to the campaign’s raucous climate. Though undergoing its own form of volatility, the S&P 500 is about 9.5 percent higher than it was in August, around the time the campaign began in earnest. Pockets of the market have taken hits, but overall it has rebounded from each dip.
“There still are plenty of concerns out there with earnings topping the list and, maybe surprisingly to many, the upcoming U.S. elections thus far have had little impact on share prices,” Citigroup said in a note accompanying its survey. “But, investors overwhelmingly see Hillary Clinton as the likely winner in November and this also may explain the disdain for the health care sector.”
On an individual basis, Valliere said “there’s so much uncertainty surrounding Trump — a trade war with China. Does he get into a fight with the Fed? There are a lot of real anxieties.”
“I don’t think there’s much anxiety over Kasich, but I just don’t see the path for Kasich to be the nominee,” he added. “Cruz is the only wild card. He can’t win a victory (in terms of a delegate majority). The math doesn’t add up. … His views on the Fed (favoring an audit of the central bank) would be troubling, but at least there would be less uncertainty. Cruz — pretty much what you see is what you get.”
There’s another battleground this year that is getting less attention than the presidential race: Congress. The Republicans hold majorities in the House and Senate, but the top of the ticket could add considerable weight to the legislative races.
As things stand in the head-to-head matches, a Trump nomination would pose the most danger to the GOP. Though still comfortably beating Cruz and Kasich in national popularity polls (40.4 percent to 32.8 percent and 20.6 percent currently in the RealClear Politics averages) Trump has been slipping in recent days.
“While Mr. Trump is still the front-runner for the Republican nomination, there is a growing possibility that other candidates (e.g. Sen. Cruz or Gov. Kasich) could be chosen,” Goldman Sachs economist Alec Phillips said in a note to clients.
“This could change perceptions of the general election outcome,” Phillips added. “The other Republican candidates still in the race perform better in polling against Sec. Clinton; Gov. Kasich, in particular, consistently leads such polls. A more competitive presidential election contest might also reduce expected Republican losses in Congress; without a heavily lopsided presidential race, Democrats would probably still be within reach of the Senate majority but would have a difficult time winning the House.”
Republicans hold a 246-188 advantage over Democrats in the House and a 54-44 edge in the Senate, which also has two independents.
From a markets standpoint, Phillips believes there are multiple ramifications.
Trump, for instance, stands apart from his opponents in his staunch opposition to trade liberalization and drug company pricing practices. He also has been a less vocal supporter of entitlement reform.
Investors, though, seem to be spending more time figuring out what impact a Clinton victory will produce.
“The markets are going to be looking for signs of (Trump) mellowing. Does he turn down the bombast?” Valliere said. “But Hillary is still the favorite. … I think the markets could live with her. That’s a major reason why we haven’t seen market instability right now.”