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More Scary Than Halloween ?

10/13/2016

My regular quarterly column will be published by Inside Business this weekend.  In it, I remind readers how much the stock market hates surprises, including presidential elections.  Being “the brightest kid in the class,” the stock market concluded months ago that Clinton would win.

The point in my column is that I expect a dramatic fall in stock prices if Trump wins, but that it will be relatively short, just like the market drop after the Brexit vote.  Investors will realize a Democrat-held Senate would effectively neuter Trump, and the market drop would offer a good time to buy more stocks.  (Frankly, even a Republican held House would stop Trump from accomplishing most of what he has promised.)

But now, investors are afraid of a possible Democratic sweep of the White House, Senate, and House, effectively ending gridlock.  Investors are no more afraid of a Democratic sweep than a Republican one, but the investing environment changes when gridlock ends.  One reason that policy issues have been discussed so little during this campaign season is that policy positions don’t matter during conditions of gridlock, because nothing gets done.  The sudden possibility of a Democratic sweep means Congress will actually do something, and we have to figure out what.  Immediately, health care stocks and biotech stocks have started crashing.  What sectors of the economy will benefit from a Democratic sweep?

It is not nice to frighten Mother Market, which was expecting gridlock under Clinton but may be getting actual action.

From my standpoint, there are so many needed things that have been bottled up by the impotent Congress for so long that I welcome a sweep by either party.  As an example, both parties agree that we need to update the tax code but cannot pass even the code changes that they both agree on.  There are numerous other examples of needed legislation, unfortunately.  Some will be stupid, and we will learn from those errors.  But certainly not everything!

As Nike says . . . Just Do It!

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