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Trump or Clinton, it doesn’t matter—a bear market is coming whoever wins

Bear Market
AFP | Getty Images

I saw a headline calling Monday's move up in the S&P 500 the "Clinton Rally." The obvious reference to the belief that a Hillary Clinton win would be better for markets than a box of chocolates Forrest Gump Donald Trump win where you never know what you're going to get. The Mexican peso was higher too. Putting aside their personalities and policy proposals, however, it will likely not matter who the next president is when it comes to the markets.

As we are in the second longest bull market of all time and as we approach the eighth year of this economic expansion (however punk), odds are high that whoever the next president is they will preside over a recession, a bear market and rising debts and deficits. Also, no matter who the next president is, at least throughout 2017, central banks will dominate markets just as they have for the past 8 years.

I get it. The next president will be very important for markets as each candidate has their own policy proposals and of course each has their own set of foibles. While both have their own plans for taxes and regulations, each will have their own challenges getting anything through Congress, especially Clinton if the Republicans keep both houses. But how the markets react over the next four years may not be that different regardless of who is president.

The main driver of asset price inflation over the past seven years has been the 'stimulus' provided by the major central banks. If you want to argue that its due to earnings, I argue that it's been a low quality earnings recovery driven by lower interest expense (thanks to the Fed), low depreciation expense because companies are spending modestly on capital expenditures, and the smallest allocation to labor costs as a percent of profits since WWII (which is now reversing). Revenue growth has been weak in this recovery.

We are in the midst of the third major asset price bubble in the past 15-20 years. Unfortunately this is the biggest one ever, manifest mostly in sovereign and corporate bonds. All assets priced off low rates are thus by extension in a bubble as well. Therefore the behavior of central bankers and the influence of global interest rates will be the main driver of asset prices over the next four years, not the next president.

As for the economy, the next president will have to deal with a U.S. growth rate that has now slowed to a run rate of about 1.5 percent. Any decline in stock prices, among other factors, could easily drive the U.S. economy into a recession as the consumer is the last buffer between expansion and contraction. The next president, far from preventing it, will be left to deal with it and the aftermath.

However, he or she will have influence over specific sectors which very well could impact individual stocks and industries. A Clinton administration will not be friendly to the financial industry nor the pharma one if recent rhetoric is any indication. A Trump presidency seems intent on increasing defense spending by a significant amount and who knows what will happen to global exporters and trade if he gets what he wants in renegotiating deals.

But when I get this question (and I get it all the time) "What will the market do the day after the election if Trump wins? If Clinton wins?" Here's my bottom line answer: Outside of that one day, who cares because either of them will most likely reside over a bear market, a recession and a sharp rise in debts and deficits in the first half of the term. The best bet then may be, expect a one term president whether Donald or Hillary.

In the meantime, investors should raise cash, buy gold, silver and other commodities where the bear market in them is most likely over. U.S. stocks are very overvalued and better opportunities are abroad. The bond market bubble of epic proportions is coming to an end. Thus shorten durations and pay attention to credit risk.


Commentary by Peter Boockvar, the chief market analyst for the Lindsey Group and co-chief investment officer at Bookmark Advisors. Follow him on Twitter @pboockvar.

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