Suddenly Trump And Hillary Is All Goldman’s Clients Want To Talk About
By Tyler Durden
A little over a month ago, conventional wisdom (and overrated pundits) said that Trump has no chance of being the republican nominee. They were all wrong, but so was the market which continued to ignore the possibility of a Trump presidency until well after the fact. And, as always happens, now is when if not the market, then certainly Goldman’s clients are finally trying to catch up. As Goldman strategist David Kostin (who just one week ago warned that there is now a substantial risk of a market drop ahead of the year end), writes “Politics is now a topic in every client discussion.”
Kostin remains short-term bearish, and still sees the S&P sliding as low as 1850 in the next several months, but he appears more focused on the the impact of the next president on the market and the economy, now that suddenly the market is starting to price it in.
So for all those curious, this is how Kostin is responding to all of Goldman’s clients questions about the upcoming presidential election and how to trade it.
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United we stand, divided we fall: Equity strategies ahead of a rise in political uncertainty
The US Presidential election will take place in 170 days on November 8, 2016. Politics is now a topic in every client discussion. Last week we argued the S&P 500 was vulnerable to a 5%-10% drawdown and the index could fall to 1850-1950 during the next several months although it would end the year at 2100, roughly 3% above the current level. Rising political uncertainty was one of the risks we identified as a potential catalyst for a market drawdown.
Prediction markets assign a 60% probability that Hillary Clinton will win the general election. Polls tell a different story: the Real Clear Politics (RCP) average of the most recent national polls shows a 3.1 point spread in favor of presumptive Democratic nominee former Secretary of State Clinton (45.8) versus presumptive Republican nominee businessman Donald Trump (42.7). The RCP spread has narrowed from 9.3 points just one month ago (48.8 vs. 39.5 on April 20, 2016). Some polls such as the May 18th Rasmussen Reports show a spread of 5 points in favor of Trump (42) vs. Clinton (37).
Polls in prior presidential elections tightened as voting day approached. But thus far 2016 has hardly followed a regular election playbook. Our view is the closeness of the current race is underpriced by the market. We believe that the contest will become more competitive – or at least will be perceived as more competitive – than it is currently. The upcoming party conventions (Republicans on July 18-21 and Democrats on July 25-28) will raise political uncertainty as the competition enters the home-stretch.
Equity market uncertainty will almost assuredly climb during the next several months in concert with rising political uncertainty. The US Equity Market Uncertainty Index tracks articles in more than 1,000 domestic newspapers that use the terms “uncertainty,” “economics,” and “equity market” or “stock market”. …read more
Source: Suddenly Trump And Hillary Is All Goldman’s Clients Want To Talk About
