Probable Election Outcomes: U.S. Dollar, Stocks

This year has seen much fluctuation across the markets in regards to the US presidential election.

Bloomberg compiled a cross-asset guide to how Wall Street strategists predict the markets will react in the event that Donald Trump or Hillary Clinton wins the presidency. It is assumed a Trump victory would have Republicans keeping control of both the Senate and the House of Representatives. It would be a different scenario if the Democrats recaptured both houses of Congress.

If Clinton wins, the US Dollar would go up compared to developed currencies, as the focus would shift to the Fed raising rates. It would remain neutral against most emerging market currencies. The Mexican Peso and the Russian Ruble would strengthen. With Democrats in control, the US Dollar would rise even more for advanced currencies on increased spending. This could come after an initial shock in the market.

If Trump wins, the value of the dollar may go down compared to developed currencies, especially the Swiss franc and Japanese yen. The dollar may rise in value against others, especially emerging currencies because of protectionism fears, as jobs are brought back to the US. But it may strengthen later on taxu cuts or spending increases. The Mexican Peso would take the biggest hit.

Bloomberg strategists predict a negative effect on the stock market with increased volatility if Donald Trump wins. This could be seen especially in the rate-sensitive equities. Longer term, infrastructure stocks would outperform.

If Hillary Clinton wins, they say there would be a relief rally after the recent slump on Trump’s rise. Drug makers and banks will underperform on regulatory fears. If the Democrats take over, there may be a smaller relief rally, with a bigger downside for the banks and drug makers. They predict a longer-term upside for infrastructure and a downside for financials.

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