Amid a bout of dreary rain on Wall Street Tuesday, there is a sliver of sunshine.
And investors have none other than New York City native Donald Trump for that. You see, in Trump arguably losing the first presidential debate, the market will read it that Janet Yellen and the Federal Reserve will be able to continue to do their thing. That thing: lifting interest rates at a snail's pace while also communicating their moves months in advance.
Trump has been very critical of Yellen & Co., which in recent weeks has frightened investors. "The Fed is being more political than Hillary is tonight," Trump boasted last night, apparently forgetting that the Fed was created as independent of the government. Trump went onto blast Yellen for sowing the seeds of a "big fat bubble" in the stock market, making very clear that he would replace the Ben Bernanke disciple fairly quickly if elected as a leader of the free world.
Whether one agrees with Trump about Yellen isn't the point in the aftermath of his debate performance. What matters are the optics, and a perceived Clinton presidential win means several things as it pertains to the Federal Reserve (and they are likely to be viewed favorably). They include:
- A very experienced person in Janet Yellen will continue to lead the Federal Reserve. Given how Trump has filled out his team of close aids, there is no assurance he would choose a battled-tested, experienced Federal Reserve chief. Just can't have Carl Icahn running the Fed. Can't.
- Someone the market is in lockstep with will continue to lead the Federal Reserve. The market has come to know Janet Yellen, anticipating pretty well what she will say about the economy and interest rates and how she will say it. Hence, they are able to enter positions (likely long positions given her dovish bias) with a reasonable degree of confidence.
- The Federal Reserve won't be blown up just as it's trying to slowly unwind extraordinary post-Great Recession policy measures. By blown up, it means the Fed won't be restructured to fit Trump's views that it's ruining global society.
While stock market bulls could rest a touch easier today thanks to Clinton's performance on Monday night, there is at least one stock that may come under pressure. That is none other than fast-food heavyweight McDonald's (MCD) .
Clinton reiterated her call for higher minimum wages last night, and it's something she would likely push very hard within her first year as president. McDonald's has no answer to minimum wage creep, it really doesn't. The company was founded on low wages and the subsequent ability to keep food prices super low. Such an equation takes a major hit when wages go on an uptrend toward $15 an hour or more. If a McDonald's franchisee tries lifting the prices for a Big Mac to $8 to compensate for higher wages, it will send people back to the supermarkets to save money by eating at home. For others, it will send them to higher-quality offerings that are priced only slightly higher.
Suddenly, Walmart's (WMT) move to hike wages and pay out more quarterly bonuses in front of a Clinton presidency is looking genius-like. At least the market has had time to factor in the impact, which hasn't been the case for a McDonald's that has fought like hell to sidestep the issue.