The Australian sharemarket was flat in the month of September, closing at 5,525.2 points. Last month, the Reserve Bank left the official Cash Rate on hold (at 1.50% per annum) and the Australian dollar gained 1.98% (currently buying 76.75 US cents).
Global investment markets were also relatively subdued in September. The US Dow Jones Index fell 0.5%, the London FTSE gained 1.7%, the Japan Nikkei 225 fell 2.6% and the Hong Kong Hang Seng Index gained 1.4% in the month.
Last week marked the first TV debate between US presidential candidates, Donald Trump and Hillary Clinton. While the debate was widely seen as being short on policy detail, this should not detract from the reality that policies matter (and will be a key factor in determining the election outcome on November 8).
It is widely assumed that the Republican party is more pro-market/pro-business than the Democratic Party (due to its advocacy of lower taxes and less regulatory intervention). However, as shown in the chart below, the historical evidence shows that the US stock market has typically performed better under Democratic presidencies.
It is important to note that, timing may be a key factor in the above results (rather than specific party policies). Democratic leaders of the past have tended to have the good fortune in presiding during periods of low oil prices, higher productivity increases and generally better global economic conditions.
While some of Trump’s policies are in keeping with the Republican party’s traditional association with laissez-faire capitalism, small government and conservative social policies. Trump also deviates considerably, veering heavily into populism (notably in terms of trade and immigration) where his policies are widely seen as economically regressive.
Trump’s lack of convention, his populist policies and his frequently belligerent public tone have enabled him to differentiate himself and appeal to the disenfranchised ‘squeezed middle’ of US society.
Clinton’s policy platform is much more in line with the traditional norms of her own party. This means a greater emphasis on reducing social inequalities backed by state intervention and regulation. Clinton’s policies are also considered to be aligned with current Democratic president, Barack Obama.
While the overall macroeconomic and stock market impact of US presidencies is limited, it must be noted that a Trump victory would appear to be the less favourable outcome for US stock market in the short run.
The reason being that Trump himself entails a much higher degree of uncertainty - be it in terms of his lack of policy detail, inconsistency on various issues, lack of public service experience or his belligerent personal style. Nevertheless, stock markets are prone to surprise investors and the US election impact (if any) will be known only 5 weeks.
For more information, please contact Ryan Love or Michael Clapham on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.