Trading the 2016 Election: Part 6 – Learning from The Debates

By: Wayne Duggan

The first presidential debate from Hofstra University last week hopefully went a long way in helping undecided voters determine which candidate they will support when November rolls around. However, for stock traders, we at Lightspeed think the debate may have provided some helpful clues about how the market will react to the election.

The Results Are In

Scientific post-debate polls indicate that Democratic nominee Hillary Clinton was the big winner over Republican nominee Donald Trump on debate night. A CNN/ORC scientific poll of debate viewers revealed that 62% of respondents concluded that Hillary Clinton won the debate, while only 27% of respondents believe Donald Trump won the debate.

Trump and his supporters point to non-scientific online polls, such as those conducted by Fox News, Drudge Report and Time, that indicate Trump won the debate. However, scientifically reliable polls by CNN/ORC, Breitbart/Gravis and YouGov all indicate that a carefully-controlled sampling of the electorate believes that Clinton was the clear winner.

The Market Reacts

Many traders are looking ahead to Election Day and trying to figure out how the stock market will react to the results. Monday night’s debate was the first time the two candidates squared off face-to-face and gave the market a chance to react to a winner between the two leading candidates.

On Tuesday, the S&P 500 climbed 13.8 points, a 0.64% gain. This positive market reaction could be the first indicator that a Clinton victory in November or Clinton pushing ahead in the polls in the weeks leading up to the election could be signals for U.S. stock traders.

Of course, one data point does not make a trend, and traders should watch to see which candidate wins the next two presidential debates and how the market reacts to those victories as well.

Status Quo: The Best-Case Scenario

Many American voters are fed up with the status quo in Washington. The President and Congress butt heads seemingly on every issue, and very little meaningful legislation gets passed. For Americans hungry for change, that’s a recipe for frustration. For businesses looking for economic predictability, it’s a best-case scenario.

According to Greg Valliere, chief political strategist at Horizon Investments, the only thing better for the stock market than a Clinton victory could be a Clinton victory coupled with a Republican Congress. “I think the most likely scenario and the one the markets could live with the most is one under which [Clinton] wins but wins modestly because a modest win for her means that at least one of the houses (maybe both) stays Republican,” Valliere said at a luncheon earlier this month.

Politics aside, the stock market has performed exceptionally well in the past eight years with a Democratic president and a Republican Congress. Whether you’ll vote for her or not, it would likely be a smooth transition policy-wise from Obama to Clinton. You can’t blame investors and business leaders for wanting the status quo when the status quo has been so lucrative.

Here at Lightspeed, we provide brokerage services and trading resources. To learn more about us, or to read more articles like this one, check back here regularly for updates.

Disclosure: the author holds no position in the stocks mentioned.

Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services nor information provided by any of the above service providers and any service or information used to execute any trading strategies are solely based on the independent analysis of the user.

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