Randy Frederick, managing director of trading and derivatives at Schwab
Vice President of Trading and Derivatives
Randy focuses primarily on client education and market analysis. He is a frequent guest on CNBC and Bloomberg TV.
Presidential Debate: Any Policy Insights for Investors?
September 28, 2016
RANDY FREDERICK: The first of three presidential debates was held on Monday, September 26th, and it goes without saying it was anything but dull. Mike Townsend, Schwab’s Vice President of Legislative and Regulatory Affairs, joins me for the September 28th Schwab Market Snapshot, to discuss what takeaways, if any, there were for investors. Welcome back, Mike.
MIKE TOWNSEND: Great to be with you, Randy.
RANDY: So, Mike, politics of course can have a huge impact on the financial markets. Was there anything in this debate that investors could take away, either positive or negative, for either equities or bonds?
MIKE: You know, Randy, I really didn’t think there was a lot of new news that came out of this debate. Probably the most relevant topic that was discussed was an early discussion of tax reform policies of the two candidates, but even that was done at a very high level.
Trump hit Clinton for wanting to raise taxes on the wealthiest filers; Clinton hit Trump back for wanting to lower taxes for everyone, saying that would blow a hole in the budget.
But there wasn’t a lot of specific discussion of issues that investors care about, like capital gains taxes or estate taxes. So overall I didn’t think there was a lot new that came out of the debate for investors, but obviously the markets are keenly interested in the overall outcome of the race.
RANDY: Well, speaking of the markets, one thing I noticed while the debate was going on was that the equity futures and the Mexican peso were both rallying, and I think that implies that Hillary Clinton won. Now of course the next day we also had a rally in the equity markets, so if Hillary was the winner why is that bullish for the U.S. and for Mexico?
MIKE: Well, if you go back to August, after the conventions, Hillary Clinton pulled out to a pretty consistent four- to eight-point lead that lasted all the way through the month, until we got to September and we saw the race start to tighten again, and the markets had a little bit of concern about that.
I think the markets are anticipating a Hillary Clinton victory because she is a consistent known quantity; she’s following a close ally into the White House. She would probably maintain the status quo, and there’s some comfort for the markets in that. There’s unpredictability, uncertainty around a possible Trump presidency. And, I think the Mexican peso has become kind of a barometer for Trump’s chances to win, because of course Trump has discussed building a wall between the U.S. and Mexico, he’s talked about renegotiating the North American Free Trade Agreement, and those cause concern to our neighbors down south. So I think you’re seeing the markets kind of trying to hope for a Clinton victory and a more predictable outcome, but we still have a ways to go, obviously.
RANDY: Well, one thing’s for sure, this debate was not short on talk, but at the same time there was a lot that wasn’t said. So do you think the next presidential debate will cover some more of the topics that people are interested in, things like healthcare and energy policy, or maybe even immigration and terrorism?
MIKE: Well, the reality, Randy, is you can’t cover everything in a 90-minute debate, so there are a number of issues, including those you mentioned, that didn’t get picked up.
Now the second debate is a different format; that’ll come up on October 9th in St. Louis, and it’ll be a Town Hall format, where you’ll have two moderators, but also a live audience of uncommitted voters. I think you’ll see more issues come up, a larger number of issues, discussed for a shorter timeframe, kind of a grab-bag of issues that particularly the live audience will bring up.
So I think you will see things like energy and the environment and terrorism, immigration… which is a surprising issue that didn’t come up because it’s been so central to Donald Trump’s campaign… so I think you’ll see a larger variety.
And then of course in that third and final debate you’ll see the moderator try to fill in the gaps, anything that hasn’t been discussed in the first debate, so it’s easy to think of this first debate as the first part of a three-part story.
RANDY: Yes, and it was definitely interesting to watch. Now as you mentioned, there are two more presidential debates, but, actually, the very next debate is the vice presidential debate, and that one is on October the 4th.
Now neither of those candidates are anywhere near as colorful as their presidential running-mates, so do you think that debate will be anywhere near as entertaining, or does the VP debate really even matter?
MIKE: Well, historically the vice presidential debate has not had an influence on the outcome, but I do think it’s an important opportunity for voters to get a chance to know these candidates.
Tim Kaine, the Democratic Nominee, and Mike Pence, the Republican Nominee, both have had long, distinguished careers in public service, but neither is very well known, and, as they say, the vice president is only a heartbeat away from the presidency. So it’ll be an opportunity for people to get to know these candidates, but I don’t think we’ll be anywhere near the 84 million voters who turned into the first presidential debate, and I don’t think it’ll have near the influence in the outcome.
RANDY: Yes, thanks for that great perspective, Mike. That’s about all the time we have for today. If you have any questions, please call and talk to a Schwab professional. You can read more of Mike’s Washington Insights on Schwab.com, and you can always follow me on Twitter @RandyAFrederick. We’ll be back again. Until next time, invest wisely. Own your tomorrow.
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