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Vera Yuan
Gordan Pape

Hold Your Breath For Tuesday's Vote

What will happen after the election

November 07, 2016

We got through the normally volatile months of September and October with hardly a bump in the stock market. But the next few months may be quite different. It all depends on what happens on Tuesday.

Historically, November has been positive for equities, with the S&P 500 recording an average gain of 0.7% annually over the period from 1928 to 2015, according to data compiled by Yardeni Research.

December has been even better, with the traditional Santa Claus rally boosting average returns for that month to 1.4%. Over the 88 years tracked by Yardeni, the S&P has been up in 64 of them. Only 24 years were losers. That's by far the best winning percentage of any month.

But this year could be much different. It all depends on who comes out on top after all the votes are counted on Nov. 8.

Market tension over Tuesday's vote has been evident ever since FBI Director James Comey revealed in an Oct. 28 letter to Congress that his agency is looking into a trove of Hillary Clinton-related e-mails found on the computer of disgraced politician Anthony Weiner. Clinton's top aide, Huma Abedin, is Weiner's estranged wife.

Although the FBI has obtained a search warrant for the computer, there has been no further statement from Director Comey on whether the e-mails contain any new evidence that might be used against the Democratic nominee.

All this has resulted in a resurgence in Donald Trump's campaign, with some polls putting him in a dead heat with Clinton with only days left before the vote.

The S&P 500 lost ground for eight straight days between Oct. 25 and Nov. 3. That drop has been attributed mainly to the Comey letter and its after-effects. However, it's worth noting that the decline began prior to the Director's bombshell announcement so clearly there were other factors involved, including some disappointing third-quarter financial results.

But all that is history. What really counts now is where we stand on Wednesday morning.

A victory by Hillary Clinton will probably spark a rally in New York, with the rest of the world following in lock-step. It's not that investors love Clinton - they don't. But her presidency, clouded as it is by the e-mail scandal, would at least be relatively predictable. She would not fire Federal Reserve Chair Janet Yellen, she would not tear up international trade deals, she would not order the deportation of millions of illegal aliens, and she would not declare a trade war on China.

In all probability, not a lot would be accomplished under her administration, in part because of the baggage she brings to the office and in part due to the likelihood of continued gridlock in Washington. But that won't bother Wall Street much. It just wants to be left alone. If Washington went four years without passing any legislation or issuing any regulations that affected it, that would be just fine. A Clinton presidency would probably mean years of drift and inaction but that's better than the alternative in investor's eyes.

That alternative is a President who would throw out the rulebook the day he takes office and leave everyone guessing as to where the country is going. Remember Trump's comment in the third debate on whether he would accept the results of the vote? "I'll keep you in suspense," he said. That's where investors would be if he wins - in perpetual suspense. We all know that the markets hate uncertainty. If Trump wins, we'll be living with it for the next four years.

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