Six months ago, even the most optimistic Republican voter knew that winning back the White House in 2016 was not going to be easy with a very well-funded and well-known opponent like former Secretary of State Hillary Clinton to contend with. And the markets, being the markets, had already priced in what was the most likely scenario that Mrs. Clinton would win the presidency this coming November. Then came the growing and ever-more-serious email scandal. Then came Donald Trump. Then came a shocking surge in the polls from Bernie Sanders. Suddenly, Clinton is less of a lock than ever. While she can still win the election, it's getting clear the markets aren't pricing in a Clinton victory so much anymore. And uncertainty and the markets don't mix very well.
One of the things that may be rattling stock investors the most is that Trump, Sanders, and Clinton are all sounding a very similar antagonistic tone against Wall Street. The reason for the animosity is pretty simple; it's a winner in the polls. Of course, when it comes to bashing Wall Street only Sanders can claim to have come to that position from the very beginning of his career. But his continued and now increasing strength in the polls is pushing Mrs. Clinton further and further to the left. The Democratic Party base has moved far to the left since the last time she ran for office in 2008. And compared to the party that nominated and helped elect Bill Clinton president in 1992, it's almost an entirely different group altogether. The Clinton camp seems to be just realizing this now.
So now, the former Senator from New York bankrolled by Wall Street is now trying to cast herself as an enemy of the moneyed interests. That's despite having taken billions from those same interests for decades in campaign contributions to her and her husband and in ethically questionable donations to the Clinton Foundation. Over the summer, the former Secretary of State seemed to be focusing that anti-Wall Street rhetoric against hedge fund managers only. But with Sanders now leading in Iowa according to many polls, her message has now morphed into a call for new taxes on everyone making $5 million or more per year. If Sanders wins Iowa, look for more leftward shifts from Clinton until her proposals and the Sanders economic platform become virtually indistinguishable. This is certainly not the Hillary Clinton presidential candidate Wall Street or even Silicon Valley has been backing with the big bucks for what seems like years now.
So while the markets may have priced the old Hillary Clinton into their economic outlook for the next four years, the new much more leftist Hillary Clinton is a lot more of a wild card. This doesn't mean the sharps on Wall Street won't make a killing with this new Hillary in office, but it will probably take them a while to figure out how. And while they do that, stock prices could continue to gyrate wildly for reasons other than just oil and the Fed. And if Sanders wins the nomination or the presidency, all bets on the Street will definitely be off.
But Hillary Clinton's move to the left and the Sanders surge is only one part of this equation. The other huge factor is Donald Trump's continuing dominance in most of the GOP presidential polls. Getting a billionaire real estate magnate with a decidedly pro-business corporate tax plan into the White House would usually be considered a plus for Wall Street. But Trump's freedom from needing major donations at least for now, and some of his wild pronouncements like promising to initiate a tariff war with China have some bigger investors skittish. The bottom line is that with a President Trump, the markets truly don't know what they're going to get.
The continued oil crash and the wild reaction to the first Fed rate hikes in almost a decade have helped to mask the markets' growing worries about the election for now. But that camouflage should strip away if Sanders and Trump win the Iowa caucuses a mere 10 days from now.
The good news for all those investors who hate this political uncertainty is that it isn't likely to last long. It's been almost 50 years since both of the major parties didn't have their presidential nominees basically locked in by June of the election year. But in the unlikely event that we see one or both parties going into their summer conventions without presumptive nominees already in place, the volatility we've experienced lately might seem like nothing.