Quick Gains Over Slow Pains: Why Wall Street Wants Clinton

© REUTERS / Brian SnyderU.S. Democratic presidential candidate Hillary Clinton speaks at the Congressional Hispanic Caucus Institute's 39th Annual Gala Dinner in Washington, DC, U.S. September 15, 2016
U.S. Democratic presidential candidate Hillary Clinton speaks at the Congressional Hispanic Caucus Institute's 39th Annual Gala Dinner in Washington, DC, U.S. September 15, 2016 - Sputnik International
A Democrat win in November would mean further gains in stocks before bursting asset bubbles and recession inevitably take their toll on the financial markets’ profitability.

Kristian Rouz – With the US presidential elections looming, a lot has been said and written about the largest financial enterprises supporting the Democrat ticket this time around, either directly, through donations and sponsorship, or indirectly, through special interest groups.

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Even though the left-wing agenda, favored by many Democrats, is deemed as a factor potentially alienating big business, many financials are leaning towards Clinton due to her perceived willingness to continue or expand the federal spending within its current framework, where the lion’s share of this money ends up in the stock market.

While both major party presidential nominees are favoring greater federal spending in the years to come, Donald Trump’s economic plan provides massive investment in infrastructure and manufacturing in order to lift up Main Street, or the real economy. However, stocks, having seen massive gains in the past two years, benefit greatly from the existing framework of federal economic policies.

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According to Goldman Sachs Group Inc., even though the stock market rally has continued for several consecutive months amid the loose monetary conditions, there are many stocks still underperforming compared to the broader market dynamics. These are the stocks of companies accounting for almost 20pc of all sales in the US, and their value-to-earnings ratio is still below the market. With equity investors struggling to find profitable opportunities recently, and with a huge amount of investment money stashed in safe havens, such as gold and bonds, these investors are eager to see further expansion in the stock market.

Trump’s economic pivot is likely to hurt the value of equities, in a scenario similar to Brexit, while the Clinton administration would spur further appreciation in stocks.

“Increased government spending appears to be the most likely policy outcome from either a Clinton or Trump presidency,” Ben Snider of Goldman Sachs Group Inc., wrote in a note. “Regardless of who wins, companies leveraged to fiscal expansion should benefit.”

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Despite Goldman being cautious, the patterns of governmental spending are bound to differ greatly under a Trump or Clinton administration in accordance with the aforementioned considerations.

At this point, one of the prominently undervalued sectors is Aerospace and Defense stocks, with a price-to-earnings ratio at 17.0 compared to that of broader S&P 500 at 20.1. A Clinton win would provide a major boost to the sector, not just because of the unchanged domestic economic policy but also due to the expected more aggressive foreign policy stance of the Democrats at this point.

Citibank recently said that a Trump victory in November would make safe havens the best bet parking investment money, with gold to buy into. Clinton would benefit stocks.

"Markets are only partially pricing in a Trump victory, the clearest expression being the sharp rally in the U.S. dollar against the Mexican peso," Citi said. "Bond yields have been rising.”

Meanwhile, Deutsche Bank, recently probed by the federal authorities, laid out a more cautious vision of the post-election investment landscape.

“It’s difficult to pin down specific policies from either candidate but on several economic issues their general bias is clear,” David Bianco of Deutsche Bank said. “Slow hikes that allow inflation to accelerate and steepen the curve might favor smaller banks and insurance, but this could pressure price-earnings [ratios] at non-financials.”

Dovish Fed policies are associated with the Democrats, while Trump is widely expected to push for aggressive raises in borrowing costs in a policy normalization effort.

According to Goldman, should Trump win, the immediate beneficiaries would be professional services firms, software companies and growth stocks (companies that focus on increasing their value over yield, for instance, electric furnace manufacturers like Siemens). A Clinton administration would immediately spur a rally in apparel, luxury goods, health-care and services companies – all consumer-reliant sectors, heavily dependent on a wider availability of consumer credit and stock value.

Subsequently, as Wall Street is most interested with their own growth prospects rather than the real economy (or Main Street), the quicker gains strategy is always preferable.

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