“We’ve been tracking the correlation between the possible election outcomes and movements in the part of the stock market that’s associated with risk appetite,” said Joel Prakken, senior managing director of Macroeconomic Advisers. “Looking for the last several months at the daily variations … there’s been an inverse correlation between the probability that Trump wins the election and stock prices.”
The findings aren’t terribly surprising or unusual. A New York Times examination of what might happen to the market during election season, using different methodology, found a Trump victory would trigger a 10 to 12 percent drop in the market.
It’s also consistent with historical patterns and isn’t peculiar to the Clinton-Trump race.
Since the end of the World War II, when the market fell in the three-month period heading into the election, the incumbent party lost 86 percent of the time, according to Sam Stovall, chief equity strategist at CFRA Research.
Getting at why is a little trickier. Trump, after all, is a businessman who has dabbled in the market, on top of representing a Republican Party that is supposed to be friendlier to business interests and Wall Street culture.
However, Prakken suspects the market is leery of the changes Trump would bring, as opposed to the stay-the-course posture that’s more likely under a Clinton administration.
“You have a candidate who’s a little erratic, and policy prescriptions that are at odds with long-running Republican orthodoxy,” Prakken said. “Some analysts suggest those policies would be quite detrimental to the economy.”
Indeed, Wall Street is betting on Clinton. The Democratic nominee has pulled in a whopping $58.6 million from finance-related contributors, compared to Trump’s $557,480, according to the Center for Responsive Politics.