Allen B. West

Wall St. makes TERRIFYING prediction about election

Donald Trump may be a billionaire, but when it comes to policy, it’s Hillary Clinton who we can expect to help the elites. We know that based solely on whose backing her. According to Open Secrets, the financial industry is her biggest industry backer, with $47.5 million donated. George Soros’ “Soros Fund Management” alone has donated over $7 million. By contrast, Trump’s largest group of donors is the retired, who’ve given a total of just over $6 million.

To little surprise, those on the Street are behaving as if a Hillary presidency is a sure thing. According to CNBC: Wall Street is pricing in a landslide victory for Hillary Clinton, but if she starts to lag, there could be a big unwinding of stock and bond market positions, according to Bank of America Merrill Lynch’s David Woo. Woo said the market is also pricing in a split Congress, with Republicans controlling the House and Democrats the Senate. That would maintain the deadlock in Washington.

So what is this based on?

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Woo said market history points to the potential for a huge Clinton victory. Ahead of presidential elections since 1960, the stock market behaved very differently when the presidential candidate won by a wide margin versus a narrow margin of Electoral College votes.

In the 90 days leading up to the election, the S&P 500 was up an average 8.4 percent when the candidate won with a margin of more than 80 percent of the Electoral College, according to Woo.

Those instances were in 1964, when Lyndon Johnson was elected, 1972 with Richard Nixon, and both victories by Ronald Reagan in 1980 and 1984. But when the margin was less than 20 percent, like in the 1960 election when John Kennedy was elected, 1976 when Jimmy Carter was elected or in both elections of George W. Bush, the S&P averaged a slightly negative return.

“Since July 5, the S&P has gone up about 4.5 percent. We’re now at the midpoint mark of this 90 day rule. The last time the stock market was up this much at the halfway mark was when Ronald Reagan went on to defeat Walter Mondale in a landslide victory. The market is not only pricing a Hillary victory. The market is pricing in a landslide Hillary victory,” said Woo.

elections stocks bofaml

Woo said there’s a consensus view on Wall Street that Trump would be bad news for the market, and that he would bring on a trade war with China. “I don’t believe that Trump is necessarily bad for business, ” he said.

In layman’s terms, there’s a consensus on the Street that a Trump presidency wouldn’t be good for the stock market, so if traders thought there was a chance of Trump winning, they would’ve sold off their stocks and bonds ahead of the election to hedge against that risk, thereby bringing down their prices. Since this hasn’t happened, Woo believes the market isn’t pricing in the possibility of a Trump presidency.

Of course, the reason Wall Street believes Trump will be bad for the market isn’t necessarily because his policies would be bad for the economy. As the late economics Nobel laureate Milton Friedman once put it, “the economy and the stock market are two different things.” Under Obama’s presidency, the stock market has surged – but because the Federal Reserve has kept interest rates historically low, forcing investors to switch their money from bonds to stocks to earn any sort of yield (thereby artificially boosting stock prices).

Hillary’s policies could be good for Wall Street, but not necessarily your typical middle class American. The top one percent of income earners hold roughly 50 percent of all stocks and bonds – what’s good for the market isn’t necessarily good for the average American. Deporting illegal immigrants and forcing businesses to use American labor may dent their profits (and thus their stock price), but it’s the American worker who benefits from employment and higher wages as a result of their illegal competition being abolished.

Does this mean Wall Street is right? Of course not. The odds according to the bookies put a 90% probability on Britain would remaining part of the European Union ahead of the Brexit vote, and we all know what happened next. The pound (and markets) immediately tanked (before recovering over the following weeks), implying that the market hardly priced in the probability of the Brexit correctly.

Will the same happen this November? We’ll find out in only 70 days.

[Note: This post was authored by Matt Palumbo. Follow him on Twitter @MattPalumbo12]

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