THE US PRESIDENTIAL ELECTION
STAY THE COURSE
With the US election looming, as an investor, you may be wondering how your portfolio could be affected by the outcome of this highly charged contest, as well as the likely impact of the eventual winner occupying the White House over the next four (or potentially eight) years on both the US and global economy and markets.

While it has been shaping up to be a close race between Republican candidate, Donald Trump, and Democratic candidate, Hillary Clinton, averages from polling data after the first nationally televised presidential debate on 26 September 2016 suggest that Clinton has a lead over Trump in voter preferences according HSBC Global Research's US Election Update.1 In polls available through 28 September 2016, Clinton had a 3.5 point lead over Trump, up from 2.8 points on 19 September 2016.1

However, the US presidential election is not decided by the popular vote at the national level, but by the state-by-state results in the Electoral College where 538 electoral votes are apportioned among the 50 states.1 Poll averages tracking electoral vote preferences show that Clinton has lost ground to Trump in several important swing states where the electorate has either swung back and forth between Republican and Democratic candidates over the years, or where current polls indicate a close race between the candidates.1
OPPOSING VIEWS CREATE UNCERTAINTY
According to HSBC Global Research, Trump and Clinton have big differences in their policy proposals, which create uncertainty about the post-election policy outcome.2 significant proposal differences include:
Clinton would raise taxes on high-income taxpayers; Trump would cut income taxes across the board.2
Clinton would make minor changes to business taxes; Trump would reduce the corporate income tax to 15% from 35%.2
Clinton would create a path to citizenship for illegal immigrants; Trump would deport millions of illegal immigrants.2
Clinton opposes the Trans-Pacific Partnership (TPP) , would renegotiate parts of North American Free Trade Agreement (NAFTA); Trump opposes the TPP, could impose tariffs on Mexico and China (which account for 35% of imported goods into the US), would renegotiate the NAFTA.2
Based on both Trump and Clinton's policy stances, HSBC Global Research believes there are four possible post-election US policy scenarios depending on the division of power between the White House and Congress.2
SCENARIO
Status Quo/Gridlock
Clinton presidency, Republican Senate, Republican House; or
Clinton presidency, Democratic Senate, Republican House
STORY
Only modest changes to current structure of taxation of spending
GDP
GDP growth near trend
INFLATION
Core inflation closer to 2.0% by end of 2017
MONETARY POLICY
Accommodative for an extended period of modest rate hikes
SCENARIO
Bigger Government
Clinton presidency, Democratic Senate, Democratic House
STORY
Higher taxes matched by increases in government spending; slight near-term fiscal stimulus
GDP
Modest lift to near-term growth; modest decline in longer-term potential growth rate
INFLATION
Slightly faster acceleration of inflation up to 2.0% level
MONETARY POLICY
Less accommodative with more frequent rate hikes as unemployment declines
SCENARIO
Mainstream Conservative
Trump presidency, Republican Senate, Republican House
STORY
Lower taxes; increased military spending; overhaul of social welfare programmes; crackdown on illegal immigrants; low-level trade war with Mexico and China; replace health care subsidies with tax credits; devolve Medicaid; partial privatisation of Medicare
GDP
Potential near-term boost to GDP growth through lower taxes; longer- term slowdown in growth from slower growth in labour force and from rise in interest rates from higher budget deficits
INFLATION
Modest boost to near-term inflation in line with higher import prices and modest supply shock of contracting labour force
MONETARY POLICY
Pulls forward potential Fed rate hikes to control inflation
SCENARIO
Populist Overhaul
Trump presidency, Republican Senate, Republican House
STORY
Lower taxes; increased military spending; trade war with Mexico and China; mass deportation of undocumented immigrants
GDP
Spike in economic uncertainty; after short boost to GDP growth from tax cuts stagflation sets in as drop in real incomes from spike in import prices leads to contraction in consumer and business spending; economy drifts toward slower growth and possible recession as immigrant labor force contracts
INFLATION
Core inflation moves higher with rising import prices, potentially reaching the 4-5% range in 2018
MONETARY POLICY
Fed initially tightens policy in the face of inflation pressures, then swings to easier policy stance as GDP growth slows and unemployment rises
Source: HSBC Global Research, US Elections: Four Post-Election Policy Scenarios, 17 July 2016.


STAY THE COURSE,
LOOK AHEAD
However, as much as the results of the US presidential election could potentially affect the direction of both the US and global economy and markets, decades of historical data show that presidential elections typically do not have a long-term effect on market performance.3 While the election can have a short-term effect and stock market volatility tends to spike in a presidential election year, the volatility generally stops increasing after the election and once the markets have had a chance to digest the news and outcome.3

So what should you do as an investor?

Financial experts would advise you to maintain discipline and not allow short-term noise like the Presidential election to interfere with your focus on long-term goals.4 If you are nervous about the election's impact on the markets and want to adjust your portfolio, you should consider the following:
  • Any market turbulence following the election is likely to be a small blip over the long-term;4
  • No matter who wins, the next President's economic policies may not be fully enacted; and if they are, we do not know how they will influence markets;4
  • The efficiency of the markets means expectations are already priced into the markets.4

As an investor, you should remain focused on following sound investment principles which involve things you can control. These include3 :
  • Setting and sticking to clear investment goals
  • Ensuring that your portfolio is well diversified across asset classes and regions
  • Keep investment costs as low as possible
  • Take a long-term view
So, stay calm and contact your Relationship Manager or visit any HSBC branch to conduct a financial review to access your investment portfolio.
1HSBC Global Research, US Election Update: Clinton's Lead Narrows in Important Swing States, 30 September 2016.

2HSBC Global Research, US Elections: Four Post-Election Policy Scenarios, 17 July 2016.

3Vanguard.com, Worried About the Election's Impact on Your Portfolio? Markets are Nonpartisan Long Term, 23 September 2016.

4Truepointwealth.com, How to Invest for the 2016 Presidential Election, 18 July 2016.
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