(Reuters) - U.S. Democratic presidential candidate Hillary Clinton and Republican candidate Donald Trump are in a tight race ahead of the Nov. 8 U.S. presidential election.
Following is a weekly roundup of financial market analysts’ views on the U.S. elections and the likely implications of a Trump or Clinton win on financial markets.
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SAVITA SUBRAMANIAN, EQUITY & QUANT STRATEGIST, BOFA MERRILL LYNCH
U.S. earnings: “The election could draw the focus from earnings in the coming weeks, and the election is likely to drive volatility higher as it has historically... Guidance trends this year have paralleled history, where we found that management has typically grown more negative in the months ahead of U.S. elections. But a new concerning trend is that management has largely pulled back on guidance. While Sept. is usually a light guidance month (60-70 instances on average), we counted just 16 guidance instances by S&P 500 companies last month -- a record low for any month since Reg FD.”
Corporate spending: “While capex growth picked up slightly in Q2 (becoming less negative for the S&P 500 overall on a YoY basis and tracking mid-single digit growth ex-energy), we see risk that capex slows further in Q3... we’ve found that capex has typically slowed in Q3 of election years as companies cut back on spending amid uncertainty.”
Tax policy: “Of all the policy proposals emanating from Democratic and Republican leadership, we think tax policy changes have the greatest likelihood of gaining legislative traction post-election... continuing our focus on tax policy, we examine one component of recent proposals: limiting corporate and mortgage interest deductions. Our base case is that this will not occur, but key corporate sectors are vulnerable if the limitation happens and is not paired with sufficient statutory rate cuts.”
Economic impact: “The election’s economic impact will be felt mainly through fiscal policy. Trump’s plan could be more stimulative as it is more ambitious, but the accompanying tax cuts are expected to cause a large increase in public debt.”
Financial markets impact: “Leading up to the election, market volatility should rise, and a correction in risk assets is possible. The dollar should advance more strongly in the short term if Clinton wins, except relative to certain EM currencies such as the Mexican Peso.”
“Equities are expected to rally post-election as uncertainty is removed. In rates, initial steepening on fiscal stimulus hopes should give way to re-flattening in the long run, with the yield curve biased higher and steeper in case of a Trump victory. Trump’s proposal of a repatriation tax holiday could provide a substantial boost to IG credit, but the impact on HY will likely be muted.”
Trump win: “November 8 could become a turning point in American politics if Donald Trump wins the election, setting a new course for the Republican Party and changing the status quo. The equity market may initially be spooked, but could come roaring back if Trump unleashes a big fiscal stimulus program to kick-start economic growth.”
Clinton win: “If Hillary Clinton wins, we will get more of the same and equity markets will cheer, not because it is necessarily better long term but simply because equity markets like low risk.”
Sector impact: “One thing seems certain: whether we get Clinton or Trump, the health care sector is in for a rough ride with increased scrutiny over drug prices and the runaway inflation in health care expenses that the U.S. has experienced over the past three decades.”
Compiled by Bengaluru Newsroom; Editing by Dan Burns