A round of primaries on Tuesday might well seal the fate of the race for the Republican presidential nomination, but the outcome is unlikely to have much impact on the U.S. stock market, according to analysts.
In the near term, politics are being overshadowed by a number of major central bank events this week, which have an immediate impact on financial markets.
“Tuesday’s outcome will have zero impact on the markets, because investors have far more important things to deal with short-term, such as the Fed, Bank of England, Bank of Japan,” said J.J. Kinahan, chief strategist at TD Ameritrade.
The Federal Reserve, which concludes its two-day policy meeting on Wednesday is widely expected to leave interest rates unchanged, but investors will scrutinize the statement, which is likely to give clues about the future path of the rates.
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The SP 500
closed at the highest level of the year on Friday and closed just 2 points off on Monday at 2,019.64. The benchmark index is down about 1% year to date, following a more than 10% rebound from the February lows.
Analysts noted that the price of oil has dictated much of the stock market’s direction since the start of the year, while intensifying election rhetoric has had no impact.
“The current election, especially on the Republican side, has been a circus and the outcome is many months in the future. Even if we knew what that outcome is, it is practically impossible to predict the market’s reaction,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.
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Kinahan argued that what goes on in Congress will be more important to investors than who is controlling the White House.
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“There are six nominees who are generally bickering with one another. When it’s distilled to just two candidates, who by then start moving to the center and have concrete policies, people will start making bets based on those policies. We will then see a lot of rotation between industries,” Kinahan said.
A sharp rally over the past four weeks also brought down the implied volatility on the SP 500, with the CBOE Volatility index
dropping below 17, its lowest level since last December.
“There is a lot of uncertainty surrounding the elections, but the stock market so far is not at all anxious, said Frederick, noting low levels of volatility.
At least one analyst, however, believes that stock-market investors would cheer a presidential election victory by Donald Trump.
“The market wants Trump, because he is the only candidate who is business-friendly,” said Bruce Bittles, chief investment strategist at R.W. Baird, who thinks the Republican front-runner would win the White House by a landslide in November.
Current polls, however, show Democratic front-runner Hillary Clinton or Bernie Sanders would comfortably beat Trump in the general election. His overall approval rating among general population is very low. Huffpost Pollster shows his favorable rating at just 33.2%.
“The market is ignoring the possibility of the Trump presidency because he has no chance of winning at the general election even if he became a Republican nominee,” said Nicholas Colas, market strategist at Convergex.
So for now, expect the 2016 presidential election to remain the known unknown that market participants chooses to ignore.