A new study looked at how stocks reacted during the first debate and found that a Trump victory could sink the market by at least 10%.
Donald Trump is running on his business record, but recent stock market moves suggest Wall Street is pulling hard for Hillary Clinton.
Of course, that shouldn’t come as a total surprise. Clinton, the Democratic presidential nominee, has been criticized for her close ties to Wall Street, including paidspeeches to Goldman Sachs. She has also received tens of millions of dollars from donors who work at hedge funds and private equity funds. And one prominent economic research firm has suggested her Republican rival’s trade and immigration policies, if enacted, could spark a recession.
A new academic paper, though, puts an even finer point on it — looking at actual stock market returns from September to forecast how markets might react, at least in the short-term, to a Clinton loss and Trump presidency.
It isn’t pretty.
By analyzing recent stock market moves, the authors, Justin Wolfers at the University of Michigan and Eric Zitzewitz at Dartmouth College, predict that a Trump victory could shave more than 10% off the value of the S&P 500.
That’s the equivalent of a “market correction,” a significant drop in prices, although not as serious as a “bear market,” which is usually defined as a decline of at least 20%. In the restrained language of the economists: “Financial price movements suggest market participants expect a stronger economy under a President Clinton and higher risk under a President Trump.”
Of course, forecasting stock market moves is a notoriously tricky business. The paper gives extra insight into what professional investors — a group that arguably represents prevailing attitudes among America’s business class — thinks is at stake in November.
The results shouldn’t be taken as investing advice. That’s especially true with Clinton so far ahead in the polls. While a surprise Trump victory might prompt a volatile reaction, there is little evidence that a widely-expected Clinton win would result in a rally.
So how on earth can the authors claim the stock market would be more than 10% lower under a President Trump?