Trump Is Brexit

Trump IS Brexit. Allow me to explain. The presidential election was in the news today as the FBI re-opened its case investigating Hillary Clinton’s emails after new evidence was found in its research into Anthony Weiner’s separate case. This sent stocks falling mildly. I think we can extrapolate the effect it had on the market to get a good idea of what would happen on Election Day if Trump wins. I think a Trump victory would have a similar type of effect on the market as Brexit did, meaning there will be a sharp knee jerk decline before the market realizes the world isn’t ending. I’m still bearish on equities in the medium term, but that is because of the weak economy and expensive market, not because of Trump.

The S&P 500 fell about 0.89% from the time the news came out to the lows of the day. This knee jerk reaction will be amplified if Trump wins. In the PredictIt market, which essentially trades the presidential odds the way stocks are traded, Trump’s odds increased from 22% to 27%. Therefore an increase of 5% caused the market to fall 0.89%. There is one other effect we have to take into consideration. This is that this news is bad for the market even if Clinton wins because it would be unprecedented to have a president-elect under an FBI investigation. This adds to the uncertainty. This may have caused the market’s reaction to be worse than if a poll caused Trump to increase his odds by the same amount in the betting market.

If you do the arithmetic, a Trump victory would cause the market to fall about 13% if he went from his current 27% chance to 100% (winning the election) on November 8th. This isn’t realistic in my eyes because I don’t think Trump’s odds of being president will be 27% on Election Day if this new investigation changes voters’ minds. It’s tough to gauge the relationship between the market and the market for a Trump win because at other points in the past few weeks there have been so many other factors in play. Therefore, it’s tough to say what would happen to the market next week if some polls swayed toward Trump and his odds increased.

If Trump is going to win, the market would definitely want advanced notice from the polls beforehand. Using this same arithmetic, the market would fall 10.7% if Trump won while having 40% odds. In my opinion, the market moves lower because of the unknown aspect of the election more than it does over Trump’s election necessarily being bad for the economy and business.

However, Trump’s presidency is the definition of uncertainty to the market. It has been rumored Janet Yellen would step down if Trump wins. This would hurt the market as the Fed’s accommodation is why it is this high to begin with. It is possible that the market has another Brexit moment when Yellen steps down which could add to volatility. Since the market will fall on this news, Trump may try to quell it by announcing how he will go about finding a replacement. I will certainly be writing many articles on who this will possibly be if he is elected, so stay tuned for that.

The other interesting factor to keep in mind if Trump is elected is how it may affect the AT&T deal to buy Time Warner. Trump has said he will block the deal, while Tim Kaine said the Democrats would look into it. I view shorting Time Warner as a bet on Trump winning the election. Time Warner stock fell 1.4% (intraday peak to trough) on the news of Clinton being investigated by the FBI. Usually a stock of a company about to be bought isn’t effected by market movement, but since this deal is effected by politics, it did cause Time Warner stock to fall.


The market fell moderately after Trump’s odds of being president increased 5% when the news of Hillary Clinton being investigated by the FBI broke. This is basically a 5% increase in the chances that we can have two Brexit’s by the end of the year. The first would be Trump winning and the second would be Yellen stepping down as Fed chair. This could wipe away the market’s gains for the year in a heart-beat given it’s only up 4% YTD. I wouldn’t say the AT&T deal to buy Time Warner would be blocked by Trump with 100% certainty, but initially Time Warner stock will sell off until further notice. The deal is not out of the woods if Hillary wins either, so if you do believe Hillary will win, there is probably a better way to bet on the event. However, it should rally if Hilary wins. The rally will be less than the decline if Trump wins.

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  • Ron Easton

    October 28, 2016

    Who is John Galt?!

    • David

      November 1, 2016

      I'll lend you my copy of "Atlas Shrugged" and we can convince him to go take some lessons from Ayn Rand, Ludwig von Mises, and Friedrich von Hayek.

  • Rodney Emrick

    October 29, 2016

    I don't know, the Cubs could win the World series. Trump could win. A risk twist spread could pay off. My wife's lottery tick could pay off.

    • Jeff

      November 4, 2016

      The Cubs DID win the World Series. Next.

  • Jeff

    October 31, 2016

    "Therefore an increase of 5% caused the market to fall 0.89%."

    This is really sloppy and incorrect logic. Assuming you can assign causality at all, the FBI announcement caused BOTH to move. In other words, the move in A didn't "cause" B to move. If anything, the move in C "caused" both A and B to move. Then the absurdity continues by extrapolating the degree of movement in a linear fashion. At least it was worth a laugh. Do you REALLY think there is a linear relationship there? If so, I have some swampland I can sell you in South Florida real cheap.

    If A and B are correlated either A caused B, B caused A, a third factor (C) caused both A and B, or the correlation is spurious. Most assignment of "causes" to moves in the market are complete BS anyway. Post hoc rationalization at best.