Up for Debate: The Next President of the U.S.
While the Asset Allocation Committee didn’t want to play the game of tipping this sector or that asset class depending on which candidate emerges victorious in November’s U.S. Presidential election, that still left room for views to be expressed.
There may or may not have been a consensus on who would— let alone should—be the next POTUS, but there was a consensus about what the market expects.
“Markets are clearly discounting a Clinton Presidency with the Republicans retaining the House of Representatives,” as Brad Tank put it. “That’s an outcome that would explain and ultimately support the kind of tranquility we’ve seen in markets over the summer.”
In general this was felt to be a fair reflection of the challenge that the “Electoral College math” presents to Donald Trump’s campaign, regardless of how the nationwide popular vote turns out.
Some AAC members pointed to an interesting contrast with the summer’s Brexit referendum, however. Brexit was genuinely felt to be an outside probability by the elites and the commentariat in the U.K., and this came through in betting markets: in terms of the weight of money gambled, “Remain” was coming in as 70 – 80% likely to prevail; but in terms of the number of bets made, “Leave” was in fact edging it. To put it crudely, wealth owners couldn’t understand why anyone would vote to leave the E.U.
The U.S. Presidential election is arguably quite different: while much of the Republican party elite isn’t happy with Trump’s candidacy, there is some evidence that the broader American establishment, such as small business owners, can be quite enthused by him. This may be reflected in how the possibility of a Trump White House is being discounted in the markets.
What could be the outcome of a Trump victory in the race for the Presidency, or a Democrat victory in the House? Neither scenario looks market-friendly. The latter would probably see Clinton’s administration pulled further to the higher-tax, tighter-regulating left, under the influence of Senator Elizabeth Warren. The former could trigger capital flight from over-valued U.S. dollar assets.
A balance of power means a continuation of the deadlocked status quo, which, while not ideal, would at least not likely be immediately damaging. But a loss of balance would likely be volatile simply because there remains so much uncertainty about policy.
Trump hasn’t been clear about much of what he’d do, and the things he has been clear about are “cartoonish,” as one committee member put it. Our municipal bonds team has been listening carefully to statements on tax policy, for example, and finds that Trump changes his position from one week to the next. On the other hand, as another member added, can you really hang your hat on Clinton’s statements on drug pricing policy in response to the EpiPen controversy, either?
There was one perceived positive that could come from a clearer result, and that was an infrastructure spending program. Quite apart from the incipient trend for global authorities to consider replacing monetary stimulus with fiscal stimulus and reform , breaking the partisan logjam in Washington could help ensure that such a program is saved from being bundled-up with political footballs such as corporate tax reform.
Moreover, infrastructure seems likely to appeal equally to a “Mr. Real Estate” who wants to “Make America Great Again” and a Democrat who has promised “the biggest investment in new, good-paying jobs since World War II”.
About the Asset Allocation Committee
Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The panel covers the gamut of investments and markets, bringing together diverse industry knowledge, with an average of 24 years of experience.
Committee Members
Joseph V. Amato
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Biography
Co-Chair & President and Chief Investment Officer
Erik L. Knutzen, CFA, CAIA
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Biography
Co-Chair & Chief Investment Officer—
Multi-Asset Class
Thanos Bardas, PhD
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Biography
Portfolio Manager, Head of Global Rates
Alan H. Dorsey, CFA
Chief Risk Officer
Richard Gardiner
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Biography
Head of Investment Strategy Group & CIO, Neuberger Berman Trust Company
Ajay Singh Jain, CFA
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Biography
Head of Multi-Asset Class Portfolio Management
David G. Kupperman, PhD
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Biography
Co-Head, NB Alternative Investment Management
Ugo Lancioni
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Biography
Head of Global Currency
Wai Lee, PhD
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Biography
Head of the Quantitative Investment Group, Director of Research
Brad Tank
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Biography
Chief Investment Officer—Fixed Income
Anthony D. Tutrone
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Biography
Global Head of Alternatives
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