The US election is finally here. In possibly the longest, nastiest and most uncertain election in living memory, the US will go to the polls to decide which of two of the least popular candidates it wants to be President. The latest polls show a slight increase in Hilary Clinton’s lead, but in reality it could go either way.
Therefore, many investors may feel that owning shares right now is a dangerous move. After all, if Donald Trump wins then share prices could fall significantly. That’s because his policies represent a major change from the status quo and this could cause uncertainty among investors.
Even if Hilary Clinton wins, a rally in share prices may be short-lived due to her lack of popularity among vast swathes of the population. Hilary Clinton may also struggle to implement change in Republican-dominated upper and lower houses, which may lead to a lack of confidence in the US political landscape.
Certainly, there are risks to investors from today’s election result. However, to consider them bigger than problems faced in previous years would be somewhat out of focus. After all, the stock market has faced a number of huge problems in previous years and yet has always survived and prospered in the long run.
Known risk
And unlike many previous challenges, today’s risk is a known risk. In the past shares have been subject to events that were impossible to predict prior to them taking place. Therefore, the surprise factor for the US election is unlikely to be high, especially with the polls being relatively tight.
It may be the case that investors have already priced in the outlook for the election. In other words, investors expect a Clinton victory but Trump as President wouldn’t be a major surprise. This could mean that in the short term, share price falls aren’t quite as dramatic as they would be if a ‘known unknown’ event took place. For example, 9/11 took the world by surprise and caused a significant fall in share prices in the short run.
However, over the medium term share prices could fall substantially. That could be the case as the new President begins to attempt to implement their manifesto, which could prove unpopular among investors. In this sense, any share price falls could be more akin to those from the credit crunch, which started off as a concern and gradually escalated into the worst recession since The Great Depression. As such, a short, sharp fall following the election result could be followed by a gradual decline rather than a quick recovery.
In this environment, long term, patient investors could prove to be the beneficiaries. High quality companies could begin to trade at more appealing valuations following the election, which makes it more akin to an opportunity as opposed to a risk. Therefore, today could prove to be a time to buy, rather than a time to panic.
