The Stock market jumped up after Hillary Clinton outperformed Donald Trump in the first presidential debate. The general consensus is that the market likes predictability and Clinton is much more of a known commodity that Trump. For stock traders the question is will there be a Clinton Stock Rally if she continues to do well in the debates and if she pulls ahead in the polls? USA Today reports that stocks rally after Clinton vs Trump debate.
In the first trading session following the first of three face-to-face battles between the Democratic and Republican nominees for president, stocks broke a two-day losing streak, suggesting that markets are giving the first-debate decision to Clinton, although far from a knockout.
In general, Wall Street views Clinton as a more favorable candidate, as she and her policies are viewed as more of a known quantity than Trump, who investors view as a candidate that would inject more uncertainty into financial markets given his views on trade, immigration and other issues.
If Clinton does well from now until the election will there be a Clinton stock rally, how high could stocks climb and how long would it last?
What Is Driving the Stock Market?
A current focus of many investors, bordering on obsession with some, is interest rates. Many are concerned that when the U.S. Federal Reserve raises interest rates that stocks will fall and that the economy at large will suffer greatly. However, it is pretty clear that when the Fed raises rates it will not be by very much and not very often. In fact Forbes says that the Fed becomes irrelevant with low interest rates being the new norm.
It’s time to consider a new paradigm for interest rates – a paradigm where Treasury rates remain ultra-low and riskier investments are priced by a decentralized market instead of a central bank. For years, we have been warned that interest rates will inevitably rise from their “artificially” low levels back to the “normal” levels of the early 2000s.
In the mainstream narrative, the Fed has been artificially holding interest rates down to stimulate the economy, and soon it will have to raise rates to more normal levels. If it fails to do so, pundits warn, the economy could suffer dire consequences.
There are three problems with this narrative:
Today’s low rates represent the long-run natural cost of capital.
Perpetually low interest rates can have positive effects on the economy.
The Fed doesn’t control interest rates, the market does.
This is the sort of analysis that stock traders and investors find useful. Donald Trump is critical of the Fed but most folks think that he is simply using the Fed as a punching bag in order to get votes. Aside from replacing Janet Yellen when her term expires, it is not certain what Trump would do. On the other hand traders and investors expect to see rational actions on the part of Clinton and thus we have seen what could be the beginning of a Clinton stock rally.
