Trump’s Impact On The Market May Be Both Short And Long Term

Traditionally, pollsters make greater efforts to take accurate polls just before the election because their reputations rely on the accuracy of the last poll taken (they publish this number in their marketing materials). This did NOT happen in the BREXIT vote in the UK. In fact, just the opposite occurred. It remains to be seen what will take place in the U.S. presidential election. Things may or may not follow the historical pattern. They might because there is movement in some pols toward Trump and this began before the October 28th revelation that the FBI opened a new investigation on Hillary Clinton. For instance, the ABC News Tracking poll had Clinton ahead by 12 points on October 25th, but she was ahead by only 4 points on October 28th and after the news of the FBI investigation came out her lead disappeared and she was one point behind on November 1st. 

The U.S. establishment has so far been quite confident of a Clinton victory, just as the UK establishment was confident that the BREXIT vote would go their way. I have already seen two articles saying Hillary Clinton has already won the election. It's not wise to declare victory before the votes are counted, however, as Thomas Dewey in 1948 and Jimmy Carter in 1980 would confirm (the pundits, polls, and the media had also agreed that they had won).

If Clinton wins, not much will happen in the markets in the days immediately following the election. If Trump wins, the markets will almost certainly not be fully prepared for this outcome. There could be a very violent reaction as happened after the BREXIT vote. The difference will be U.S. stocks will bear the brunt of the sell-off, and not the dollar. U.S. Treasuries are not likely to rally as much as UK Gilts did either. Unlike in the UK, the Federal Reserve will not be able to lower interest rates to save the stock market. Its only option would be postponing its predicted rate hike in December.

There are a number of strategies that investors can use to shield themselves from an Election Day surprise. The simplest would be to buy some protection in the form of out of the money puts on ETFs for one of the major indexes - DIA, SPY, QQQ, IWM. Simply shorting the U.S. or Mexican stock markets (Trump's election would be considered a minus for Mexico) would also work. ETFs that short U.S. stock indices include:  PSQ, DOG, ST, RWM, MYY, and SBB. The Mexican stock market can be shorted by shorting the ETF EWW

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