Blackrock: Impact of the 2016 Election on Investing

Written by WrapManager's Investment Policy Committee | November 3, 2016

Unusually consequential election challenges the post-crisis status quo.

The 2016 U.S. election campaign has been unique in many ways, but the underlying dynamics are not. These are partly driven by widening income inequality across the world, in our view, a trend that has accelerated after the financial crisis and subsequent policy responses. Related is a growing perception that the benefits of trade and globalization have only accrued to a few. Whoever moves into the White House will have to address these issues, and we could see fiscal expansion directed at improving infrastructure and measures aimed at redistributing prosperity. We expect similar themes and outcomes to play out in key European elections next year.

Read on for an excerpt of Blackrock Investment Institute's commentary, or view the entire document here.

Summary:

Washington decision making is likely to become more fractious regardless of the Nov. 8 election result. Divisions between and within the Republican and Democratic Parties have been growing, and an outcome whereby neither party would have a significant majority in the House of Representatives is a possibility. This could make it harder to reach consensus on legislation, potentially heralding a return to dramatic showdowns over budget issues.
Yet corporate tax reform and increased spending on infrastructure appear to have some bipartisan support — and would be a ripe area for negotiation in a divided Congress. Infrastructure spending should boost growth more than usual amid rock-bottom rates, in our view. We offer some of our own policy thoughts, including steps to address a looming retirement crisis and to entice private capital to finance infrastructure.
A growing backlash against free trade and immigration threatens to make economies more insular — at a time when economic growth and productivity in many countries are barely above stall speed. Emerging markets have the most to lose, especially under a victory by Republican nominee Donald Trump. Mexico is a clear potential loser given its heavy reliance on exports to the U.S.
The U.S. election campaign suggests rising populist sentiment is likely here to stay. We also see potential changes to income taxes, with ripple effects on U.S. municipal bonds. We focus on two sectors that could be most affected by the election: financials and health care. Mergers and acquisitions are set to face increased scrutiny if Democratic nominee Hillary Clinton prevails, as her party appears to view anti-trust enforcement as a tool to boost competition and address inequality.

To view charts and the complete analysis, download the complete commentary, or read JP Morgan's take on the 2016 election. Concerned about your the election will affect your portfolio? Read about the historical impact of presidential elections on the stock market.

To learn more about Blackrock, Inc and other Money Managers, give us a call at 1-800-541-7774 or contact us here to speak with one of WrapManager's Wealth Managers.

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