Home / The last word on the US election… from us anyway

(pictured: Eddie Perkin)

There is no doubt that the markets have become more jittery in the past two weeks, as the outcome of the US election gets more difficult to predict. Here, three prominent US-based managers have the final say… from this publication, that is.

Edward Perkin, chief equity investment officer, Eaton Vance, says that despite the news that the FBI is reopening the investigation into Hillary Clinton’s e-mail server, the betting markets and forecasting web sites continue to make Clinton the favorite.  Nate Silver of fivethirtyeight.com has the odds of a Clinton victory at 74 per cent.

On the assumption that consensus has this one correct, Perkin recently hosted a meeting with Charles Myers, one of the Clinton campaign finance directors, who has known Mrs Clinton for two decades.  The goal of the conversation was to get a sense of what the first 100 days of a Clinton administration might look like, Perkin said last week.

Here were the main discussion points, he said:

• Clinton will govern as a centrist.  If the Republicans hold onto the House of Representatives, that will be helpful to her in keeping the left wing of her party at bay.  She will be able to make the case that she has to move to the center in order to get things done.  Hillary Clinton, House Speaker Paul Ryan, and (likely Senate Majority Leader) Chuck Schumer are all dealmakers.
• The top priorities for the first 100 days will be an infrastructure spending bill and tax reform.  The infrastructure bill will likely be about $275 billion over five years.  Tax reform will result in corporate tax rates of 25-30 per cent (down from 35 per cent currently).  She will push for a personal income tax hike on those making more than $250,000 but may be willing to abandon that to get a tax package through Congress.  Cash repatriation will be tied to spending the money on R&D, capital projects, etc.

Perkin said: “As I discuss the election with other investors, I get the sense that most are expecting little to change in Washington. Markets may be pleasantly surprised at some of the pro-growth policies that come to pass in early 2017.  Obvious beneficiaries include capital goods companies and firms with high tax bills or overseas-trapped cash. If Trump manages a come-from-behind victory, many of these same outcomes will likely come to pass, but with considerable near-term volatility attached.

Meanwhile, two affiliated managers of the Legg Mason group, QS Investors and Brandywine, provide similarly worrying analyses.

Mike LaBella, portfolio manager, QS Investors, said: “Whatever the US election results, a negative political undertone is likely to continue around the world given continued uncertainty about financial security, economic nationalism, and pushback on globalization and trade policies. But we don’t know what the markets may latch onto.

“Consider all the negative predictions about what would happen in the event of a “yes” vote for Brexit – what’s actually occurred in the markets has been very different.  That’s a reminder of how hard it is to predict the immediate impact of political events. At QS Investors, we think investors are better served taking a longer-term view, and utilising diversification and low-volatility strategies to seek to mitigate the ups and downs resulting from events like this.

“Looking at the presidential race, if Clinton does win the election, the most likely outcome is a divided government.  That scenario would make it less likely we will tackle large structural problems in the country, and more likely we will see a continuation of a deadline-oriented mentality in Washington, with potential government shutdowns as the parties square off on issues like the debt ceiling.  If Trump does win, there is the potential for Republican control of the White House, Senate and House, and an end to policy gridlock.  Still, given past rhetoric about possible trade conflicts, whether with China, Mexico, Japan or other countries, there would also be the potential for significant volatility.”

Francis Scotland, director of macro research at Brandywine Global, said: “We’re into the final stretch of the most important geopolitical event of the year — the US Presidential election. The two candidates offer radically different visions of American domestic and foreign policy, with enormous implications for investors as well as perhaps the organization of economic activity. Investors were already pretty rattled at the end of the second quarter by the Brexit vote, but as we head into November 8, the concern on the minds of most investors is the risk of populist political contagion in America.

“History reminds us that the economic and social problems which prevailed in the 1970s gave us Margaret Thatcher and Ronald Reagan and unleashed an economic revolution. The concern today is that today’s problems of income inequality and slow growth give us another economic revolution – but one which brings on protectionism and an end to the forces of globalization that have been quite positive for promoting global prosperity for the last 30 years.”