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US election fuels market uncertainty

When it comes to two unpopular prospects, the best one can do is have a clearer idea of which prospect it is that needs to be dealt with.

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November 8 will mark the day when the US presidential election takes place and it will be decided who is the next president of the United States: Hillary Clinton or Donald Trump. As the weeks prior to the election seamlessly drift into mere days, the US economy is on tenterhooks as the world watches. It watches with a quiet sense of dread as one of what have been dubbed as the two least popular presidential candidates of at least the last century will be declared the next president, typically regarded as one of the most powerful positions in the world.

There is a case, however, for looking forward to the result of the election. This is because it will reduce the uncertainty currently facing financial markets. Investors like to know who the president is going to be as it gives them a grasp of where economic policy is likely to head and what investments are likely to be worth making. While in the wake of the infamous presidential debates it looks like Clinton currently will proceed to beat Trump, that indication has not been clear for several months.

The effect of uncertainty becomes more pronounced when the incumbent president is about to complete their second term. Owing to the fact that the president cannot seek re-election, it is definite that they will be leaving office while on average the incumbent president is successful when seeking a second term.

Since 1928, the S&P 500 has, on average, fallen by 2.8 per cent on the final year of a US president's second term as it becomes difficult to discern who their successor will be. On average, a president seeking re-election is successful with 16 of 26 who have tried having done so. Furthermore, after eight years of the same president, the markets essentially settle as much as they can do before being thrown back into uncertainty.

The debates make it generally clear what the candidates' approach to the economy is. Clinton plans to increase the wealth of the middle class through increased taxation on the wealthy. Trump proposes to cut tax for the wealthy and for large corporations with the expectation of money trickling down the economy. It's also frequently claimed that he will add $5.3 trillion to the United States' debt. There has been little mention from either about the working class which leaves a somewhat bad taste in the mouth.

While that may be the case, at least we know that in two and a half months one of the pair will be confirmed to be the next president.

When it comes to two unpopular prospects, the best one can do is have a clearer idea of which prospect it is that needs to be dealt with.

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