Trump’s Prospects Starting to Stir as Clinton’s Health Remains a Question

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Hillary Clinton’s personal health scare is a new market risk for jittery investors already spooked by central banks poised to disappear into the woodwork in the face of lax money policies.

The 68-year-old Democratic presidential nominee, whose polling edge over Donald Trump has soothed traders who fear ruptures to U.S. policy and see virtue in political gridlock, is suffering from pneumonia and became overheated and dehydrated during a Sept. 11 commemoration Sunday, forcing her to leave abruptly, her doctor said. Clinton was prescribed antibiotics and advised to modify her schedule so she can rest.

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Most investors have discounted the chances of a protectionist and populist Mr. Trump becoming president, says Financial Review. A host of institutions including UBS, Citigroup and Moody’s, as well as billionaire investor Mark Cuban, have warned such an outcome would be negative for share markets.

“As a result, if Mr. Trump were to win I think that would be viewed as a negative development because it wasn’t expected,” Cuban said Monday.

Clinton’s sudden departure from the ceremony in New York and a bystander’s video showing her appearing to stumble as she was helped into a black van by aides and Secret Service agents is sure to resurface health questions, said Bloomberg. She blamed recent coughing jags on allergies, but Republicans have sought to raise questions about her fitness for office, particularly following a concussion in 2012 that resulted in a blood clot.

“If Clinton’s health becomes a larger factor with regard to voter decision-making, the market may have to recalculate the risk-reward of a regime change in the White House, as Clinton right now is assumed as a continuity from the current administration,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC, said. “Obviously today is another thing that’s going to draw closer attention.”

The issue for the election result and markets is not confined to Clinton’s actual health leading into the November 8 poll, but how her team has disclosed and handled her physical condition, according to Financial Review. The risk for Clinton and investors counting on her more predictable leadership style is that voters smell a coverup, reinforcing widespread perceptions about the Democratic nominee’s lack of honesty and trustworthiness.

After media queries about Clinton’s noticeable cough over the past week, she was officially diagnosed with pneumonia on Friday, her doctor said. The campaign did not go public with her illness until Sunday evening, after she was suddenly and prematurely escorted away by advisers and security officials from a September 11 memorial event. A spokesman initially said she felt “overheated”.

“If we found out that there was something catastrophic about her health it obviously would matter, but you have to be very careful about extrapolating shorter-term news,” Jonathan Golub, managing director and chief US market strategist at RBC Capital Markets LLC in New York, said. “What we do know is we have two candidates around 70 years old and in reality it must be brutal running around the world for two years.”

The extent to which investors have been able to ignore politics is illustrated by the CBOE Volatility Index, the options-derived gauge of price turbulence that in August recorded one of its lowest monthly averages since the bull market began in March 2009. A measure of cross-market volatility encompassing equities, rates, currencies and commodities overseen by Bank of America hit its lowest level of the year last week.

Investors overwhelmingly believe Mrs. Clinton, an experienced policymaker, would be better for the economy and stock market than the erratic Mr. Trump, says Financial Review. They worry the real estate mogul’s threat to raise tariffs on imports, plan to slow immigration, unbudgeted big spending on defence and tax cuts and policy to replace US Federal Reserve Fed chair Janet Yellen could destabilize equity prices.

“While fiscal stimulus would no doubt be welcome, the threat of trade wars, draconian changes to immigration policies, and ballooning deficits would preoccupy market participants, particularly at the onset of a Trump presidency,” UBS recently noted.

The property mogul warned on Monday the “false” stock market would sell off if the Fed raised interest rates and said Dr. Yellen should be “ashamed” of what she was doing to America. He also accused President Obama of forcing the Fed to keep rates near zero, ahead of its crucial September 21 monetary policy decision.

Entering the last two months of the election Trump has gained ground in recent national opinion polls, to trail Clinton 45.9% to 42.9% according to a Real Clear Politics average of polls. But Clinton leads in 10 of 11 crucial swing states that will ultimately determine the election.

Wall Street is indeed in a different mindset since the weekend’s offputting news.

“We’re fragile right now,” said Kevin Kelly, chief investment officer at Recon Capital Partners LLC in Greenwich, CT, which oversees $350 million. “It’s already priced into the market that Hillary Clinton is going to be president so right now anything that changes that narrative is going to give the market a pause to consider what that would mean.”

Steve’s Take: Complacency usually doesn’t reward investors in the long term. For many months leading up to the Florida Republican primary on Feb. 1, almost no one, and I mean not even those pundits sitting precariously, althouogh comfortably, on the brink of lunacy, picked Trump to finish better than 16 out of the 16 candidates back then.

Still, as far as a Clinton presidency is concerned, up until now, the odds of Trump prevailing again, but this time in the general election, have seemed lower than the recent yield on 5-year Treasuries. I don’t think that’s the case anymore.

Markets are starting to wake up to the possibility of an increase in the odds of a double Trump victory with the most recent, widely reported news of heightened interest in Clinton’s health following her pneumonia diagnosis, revealed only after she became “overheated” and had to abruptly leave a Sept. 11 ceremony. Trump and his allies have been raising questions and stoking speculation about Clinton’s health for months.

Some people are now throwing out a 25% “risk” of a trump victory. Is it way too early to price in that possibility, albeit somewhat slim, of a Trump presidency? Even if you have a low probability scenario of something occurring, but if it were to occur the results would be absolutely horrible, it then becomes a high risk scenario, nevertheless.

Signs of this change in the national mentality about the presidential outcome are springing up everywhere. Even the odds of a Trump victory, although still arguably “low,” they aren’t so low as to bet the ranch against it. Some observers think this now is, in fact, the case, and maybe it is time for investors to start contemplating some form of hedging strategy.

The Trump campaign is still a bit light on the details of the trajectory of a win, but if we look at what he has said in terms of fiscal policy, some say it could add another third to the total US debt over the coming 10 years. That’s pretty close to a disaster scenario. Obviously, his protectionism is extremely dangerous, not only for the US economy, but for the entire world economy.

What does this mean for bonds and money market securities? As far as fixed income markets are concerned, you would have two competing forces in a Trump presidency. If we first contemplate the protectionism philosophy, that can result in a recession which would lead to lower rates. On the other hand, you would have this “fiscal laxity” that would push rates higher. As to which result would prevail, it’s still hard to judge at this point.

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Yes, Mrs. Clinton on Wednesday released some concrete vital statistics about the condition of her health that support her claim that she is, indeed, “healthy.” But for many of us who follow these trends, there is a nagging sense that we’re not getting the whole story from her medical team either, just as we almost certainly aren’t from Mr. Trump, who went on the “Dr. Mehmet Oz” television show earlier in the day to tout his own health.

Stranger things have happened in our presidential history than a Trump victory would be in November. Perhaps it’s time to dust off my bible on hedging strategies. Or at least locate it. Or not.

Addendum: On Thursday, a rested Hillary Clinton returned to the campaign trail after three days of recovering at home from the pneumonia, and vowed a different approach on the final stretch of the campaign, one more focused on her own positive vision for the country, rather than impaling her rival.

“I want to close my campaign focused on opportunities for kids and fairness for families,” Mrs. Clinton said after her first rally of her renewed campaign. “I want to give Americans something to vote for, not just against.”

The shift in tone felt striking after Mrs. Clinton had spent months tearing down her Republican opponent, Donald J. Trump, The New York Times reported. But with less than eight weeks until Election Day and tightening polls showing a majority of voters dislike and distrust her, aides said it was imperative that Mrs. Clinton deliver a more uplifting message.

“From now until Nov. 8, everywhere I go I’m going to talk about my ideas for our country,” Mrs. Clinton said.

This week, Mrs. Clinton plans speeches to discuss how she would help young people and improve the economy, weaving in her own background as an advocate for children and as a first lady focused on women and families. That focus was central in her address Thursday at the University of North Carolina, where she took the stage to James Brown’s “I Got You (I Feel Good),” seeming rested and revived, eager to tell the audience that her rare couple of days of downtime allowed her to “reconnect with what this whole campaign is about.”

A New York Times/CBS News poll released on Thursday found her virtually tied with Mr. Trump among likely voters.

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