Investors are right about Trump—but wrong on Clinton

Donald Trump's wildly varied and changing pronouncements have failed to produce any market swings, showing investors are correctly not taking his potential presidency particularly seriously — despite the recent tightening of head-to-head national polls between him and Hillary Clinton. But while they are right to discount Trump's impact, investors are getting it wrong on Clinton.

Hillary Clinton
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Hillary Clinton

Market reaction thus far, such as in the pharma sector, has shown that they are expecting Clinton to jettison her most liberal campaign rhetoric and govern more as a moderate. To the contrary, President Hillary Clinton will undoubtedly pursue policies that are even further to the left than those of Barack Obama.

Many pundits have pointed to Bill Clinton's track record as evidence that Hillary will tack right. As president, Bill Clinton eventually triangulated to the center as a result of the prevailing political winds of the mid-1990s. But the Democratic Party has been blown in the opposite direction lately, and Hillary — like her husband — is ultimately a political animal. As the Democratic Party continues to shift left, so will she.

Many investors are also already discounting Clinton as a one-term president, potentially with good reason. Her victory would ensure 12 years straight of Democratic rule and — if current polling holds — she would start her tenure with a high unfavorable rating, which is historically unprecedented and could very well deprive her of the traditional honeymoon phase of any early presidency. But just because investors don't expect a second term for Clinton doesn't mean she shares their outlook. Like every first-term president, her overriding objective upon entering office will be to become a two-term president.

This won't be easy. After a bruising primary with Bernie Sanders, Clinton will need to prove herself to her party's progressive wing. The last thing she will want to face during her re-election campaign in four years is another primary challenger attempting to outflank her to the left. To this end, she will need to avoid moving to the right of President Obama, particularly on domestic issues. In many cases, she even will need to move left of Obama to demonstrate her progressive bona fides.

This has several important consequences for investors. First, Clinton will not give a nod-and-wink to Congress to pass the Trans-Pacific Partnership agreement in the lame duck session of Congress immediately after the election, as many on Wall Street hope she will. Instead, she will continue to embrace the protectionist approach to trade that has worked so well for Sanders and Trump with disaffected, blue-collar voters.

Second, her administration will be even stricter on antitrust policy than the current one, which could endanger some already pending proposed mergers, particularly health-care companies, given Clinton's stated concern over consolidation in that sector on the campaign trail.

Third, she will continue to press forward with environmental regulations, extending greenhouse gas restrictions from power plants to the industrial sector, including refiners and large manufacturers.

Fourth, she will use her initial allocation of political capital and a likely Democratic-controlled Senate to pressure House Republicans on legislation important to the progressive base, such as drug pricing reforms.

At the same time, House Speaker Paul Ryan will probably be dealing with a smaller majority that will have become even more conservative, making reaching any legislative compromises between Republicans and Democrats even more challenging.

However, as Congress is prone to do, it will be forced to reach a deal at the 11th hour when faced with action-forcing deadlines. For example, two important drug measures — the Prescription Drug User Fee Agreement and the Generic Drug User Fee Amendments — both expire on October 1, 2017. If Congress does not act, then the Food and Drug Administration would be significantly hamstrung in its ability to approve any new drugs in a timely manner. The Clinton administration will use this showdown as leverage to extract reforms from House Republicans that go well beyond those already proposed by the Obama administration, such as controversial changes to Medicare Part B.

Given the two choices the country is left with, it is clear that Clinton presents more certainty than Trump. But Wall Street needs to understand that Clinton is not simply talking the talk to win the election, but she will have to walk the walk if she has any hope of getting re-elected.

Commentary by Stephen A. Myrow, managing partner of Beacon Policy Advisors LLC, an independent policy research firm based in Washington, DC. He has served in various government roles, including as a senior Treasury Department official in 2008-2009. Follow him on Twitter @smyrow.

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