"If Trump becomes president of this country, the S&P 500 will go to 1,000. ... People are brushing it off, but there is absolutely no way that this market and this economy does not get pounded."
--Ian Winer, Wedbush Securities
The United States is about to see a presidential election unlike any that's occurred in our lifetimes. The two top candidates -- Donald Trump and Hillary Clinton -- are disliked and vilified to a degree that we've never seen before.
Trump in particular has been portrayed as a disaster, not only by the opposing party but by a huge faction of his own. On the other hand, The Donald's loyal supporters celebrate his blunt talk and lack of political correctness. Many believe that despite his bombastic personality and superficial policies, Trump represents exactly the sort of shakeup that we badly need to finally produce real change in Washington.
But regardless of how you personally feel about him, our job as traders or investors is to navigate the stock market in the years ahead. We have to consider all of the loud criticism about how Trump's policies would hurt the U.S. economy and destroy the stock market.
It's easy to dismiss those claims as partisan attacks, but market players have to ask whether things like the tariffs on China and Mexico that Trump talks about will have major negative repercussions. Ian Winer from Wedbush Securities predicts that stocks will fall 50% in a Trump presidency, and there's no shortage of such predictions (which the media are happy to report).
But no one can possibly know what a Trump presidency would be like. It's all a guess at this point, mostly driven by ideology and biases.
However, even if you totally dismiss the idea that Trump's economic policies will be a nightmare, the market's biggest problem is that there will still be great uncertainty about them. We all know the old saying: "The market hates uncertainty." Players want to be able to anticipate the future and price it in.
But with Trump presidency, there'd be some major uncertainty for a while. The likelihood is that it'd be tough going the market as everyone tried to figure out what would happen under Trump.
Much of today's negative arguments stem from the idea that The Donald would become some sort of dictator who could do whatever he wanted. After our recent experience with President Obama and the debate over his executive orders, many folks have come to believe that a president can act unilaterally.
But a president actually has very limited power to make major policy changes on his own -- so ultimately, the debate would shift to whether any of the policies that Trump has campaigned on can actually pass Congress.
The market loves the idea of political gridlock, and there's no question that we'd have it in spades under a President Trump. It's extremely rare in U.S. history for major policies to pass without some sort of bipartisan support.
Obamacare was a major exception when passed without any Republican support. But in Obama's first two years in office, he had the sort of congressional majority that Trump can only dream about. There's no way that The Donald will have the congressional mandate to do things that even many in his own party adamantly oppose.
And remember, while presidential candidates always throw out long lists of unrealistic proposals during campaigns, few if any such plans ever pass Congress in recognizable form. For instance, we've been promised a major tax overhaul for as long as anyone can remember, but it never happens.
So, Trump isn't going to keep all of his campaign promises. Doing so is nearly impossible in our system of government (an issue that's so ingrained in our political structure that the jokes about it aren't even funny). The real purpose of campaign promises is to simply illustrate ideology and general policies. If some of those policies actually become law (which is unusual), they'll probably look nothing like what was imagined.
For example, Trump's proposals for a wall along the Mexican border or tariffs on China and Mexico will never come to pass in the manner that his critics predict they will. But these proposals will further debates that likely need to be furthered.
Many people might dislike Trump's plans, but it's foolish to believe that he'll have the ability to implement them. If you think Obama has suffered from an "obstructionist" Congress, what do you think Trump will face?
Ultimately, the big question with The Donald is whether he's really the dealmaker that he claims to be. We've seen how bipartisan agreement has become nearly impossible over the last eight years. Can Trump change that? Is he an ideologue who'll dig in his heels, or will he change his positions and build consensus?
Many people hate Trump's personality, ego and immature comments, believing that he's emotionally and psychological incapable of making good deals. But The Donald prides himself on his supposed dealmaking abilities more than anything else, and deals don't happen without compromise.
Many of Trump's supporters also respond to critics by saying "it can't be any worse" -- and they might have a point. At worst, we'll probably have tremendous gridlock and nothing will get done. But at best, we'll actually see some dealmaking by someone who's shown that he has no qualms about changing his positions.
I admit I have a strong preference for the conservative viewpoint. But if the market sells off on the uncertainty created by the potential of a Trump presidency, that might turn into a good buying opportunity for market players.