Investment Guide to the 2016 Elections: Our Most Likely Outcomes and What They Might Mean for Investors

With the first 2016 Presidential Debate quickly approaching this evening, Chad Driewer and Cody Lockhart at Wells Fargo Advisors would like to remind investors that the elections are likely to have economic and investment implications, but they recommend riding out the waves and sticking with a long-term plan.

Here’s why:

  1. Campaign promises increasingly are unreliable: Research over presidents from Woodrow Wilson to Jimmy Carter found that an average of 75% of campaign promises were kept during a president’s first term. Yet, the average fell to 47% since 2001.
  2. National elections have been politically volatile: Voters twice have removed the majority party in each chamber of Congress since 2006.
  3. A handful of races may determine Senate control: The polls do not suggest a clear consensus, and we suspect that the presidential election could influence the final split of seats in the Senate.

Ultimately, political volatility and disagreement between Congress and the President should make it difficult to plan large portfolio changes around possible election outcomes.

Our Most Likely Outcomes and Market Implications during the Next Four Years
We don’t see a significant probability for an outcome that includes the Democrats taking control of the House of Representatives. Thus, we expect the elections to result in one of the four outcomes summarized below.

Three Questions that May Decide the Presidential Election:

1. How will the candidates’ unpopularity affect turnout?
Voters who feel strongly negative about one or both candidates may feel compelled to vote for their “less unfavorable” choice or decline to vote at all.

2. How well does each candidate appeal to independent voters?
The debates are likely the last major public forum the candidates will have to reach a national audience. The more a candidate uses personal attacks, the greater the chances that the candidate could drive turnout in favor of the other candidate.  A candidate who focuses on constructive solutions should gain popularity.

3. Will populist sentiment or desire for predictability matter more?
Loosely defined, populism is a philosophy that prefers decisions appealing to the common person vs. those adhering to traditional ideologies. Mr. Trump earned his party’s nomination by proposing to limit immigration and global trade and did especially well in the Republican primaries in the states most hurt by the loss of manufacturing jobs in the past 15 years. Mrs. Clinton was part of the Obama administration and follows her party’s past positions on many issues. She seems less populist and more predictable. Traditional conservative voters may struggle to support Mr. Trump’s positions on trade, immigration, and social issues while younger and traditionally Democratic voters may reject Mrs. Clinton if they believe she hews too closely to her party’s incumbent leaders and larger corporations.

It will be important to stay close to your investment professional, especially if policies change or if trade restrictions are likely to burden the economy. Overall, we believe it’s important to have an investment plan and stick with it. If you have any questions, please contact Chad Driewer or Cody Lockhart at 733-9155. 

Wells Fargo Advisors, LLC
120 East Pearl Street
Post Office Box 5000
Jackson, WY 83001-5000

Tel 307-733-9155 Fax 307-733-9282 Toll Free 800-338-9155

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