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As a rattled Donald Trump struggled to parry a composed Hillary Clinton in the waning moments of last week’s presidential debate, markets began to rally in Asia and the price of gold started to fall. Those were sighs of investor relief, news articles asserted, that a Trump presidency was becoming less likely.
If so, it was the first time in a tumultuous election year that broad global markets reacted one way or the other to Trump’s operatic rise as a spokesman for disaffected voters seeking to overthrow the established order. As his fortunes have waxed and waned, markets have mostly yawned.
Prices of U.S. debt and equities are showing the narrowest fluctuations for any presidential election year in at least two decades, according to data compiled by Bloomberg. That’s an unlikely scenario for markets fearful of radical change. As Donald Trump vanquished 16 opponents in the Republican primaries, movements in U.S. markets showed no correlation with his ups and downs in the polls. When the volatility of stocks and bonds are combined, the financial markets come closest to following the pattern of 2012, when Barack Obama became the first president since Ronald Reagan to be elected and re-elected by a majority of voters.
That implies that investors don’t think Trump will win, or just don’t care. Indifference can’t be dismissed — financial professionals know that presidents lack the magical power over economic affairs that the political arena demands that they claim. But the exceptional steadiness of global markets in the face of U.S. political tumult favors the first explanation: In contrast to previous election years, investors are convinced that there’s only one likely outcome this time.
The fact is that the Standard & Poor’s 500 Index has climbed irregularly this year without any correlation with the trend line of Trump’s peaks and valleys in polls. Sometimes market gains and losses coincided with his political fortunes. Sometimes they didn’t.
Trump and the Stock Market, 2016
When Trump rallied between April 4 and May 24, clinching his nomination, the S&P 500 rose 0.5 percent. When he stumbled between May 24 and June 17, it fell 0.2 percent. The index rose a significant 4.6 percent when Trump rebounded between June 17 and July 27, but appreciated a little more when he fell for two weeks after that. Polls showed Trump gaining between Aug. 8 and Sept. 15, with the S&P 500 falling 1.5 percent. Then polls showed him declining from Sept. 15 to Sept. 22, and the index rose 1.4 percent.
Any likelihood of a Trump presidency would undermine the dollar and U.S. debt securities, according to investment strategists at MRB Partners. “Based on fiscal proposals, Treasuries and the dollar would be at greater risk if Trump is elected, reflecting a much larger budget deficit,” they wrote in a Sept. 13 report.
Yet in the market for Treasury securities, daily price swings throughout the past nine months show no affinity with Trump’s highs and lows in the polls.
There’s been one notable exception to market apathy about Trump: investors who buy and sell the Mexican peso have shown concern. No doubt they believe that a Trump presidency would be bad for the southern U.S. neighbor if the real estate and casino franchiser follows through on his vow to build a wall across the border and nullify the North American Free Trade Agreement that includes Canada, Mexico and the U.S. The peso lost 11 percent of its value against the dollar this year almost in lock-step with Trump’s strength in the polls and crashed to a record-low 19.93 on Sept. 27 when the Bloomberg Politics poll said he was tied with Clinton.
Trump and the Peso, 2016
That makes sense. Since Nafta became law in 1994, American trade with Mexico surged fivefold to more than $500 billion in goods annually. As the third-largest U.S. trading partner after China and Canada, Mexico sent 73 percent of its exports to the U.S. in 2015, according to data compiled by Bloomberg.
But if Trump’s political fortunes have power to move one currency market, they fall on deaf ears in others. Neither his praise of Russian President Vladimir Putin nor expressions of contempt for the North Atlantic Treaty Organization did anything to move the ruble.
Not only has there been no connection between market performance and Trump’s polls, but there’s been little sign of investor unease over the verdict voters will deliver in November.
The price fluctuations for debt and equity this year are the smallest since 1992, when Bloomberg began compiling such data. The average implied volatility of the S&P 500 during the past 120 days is 14.4 percent. That’s lower than in any of the last six presidential election years, and significantly less than the average volatility during those years of 18.3 percent. In the bond market, global investors reveal no expectation that 2016 will be a year of significant change. That’s because the implied volatility for Treasuries is 68.7 percent for the past 120 days, less than in the same period of any election year since 1988 and well below the average of those last seven campaign seasons of 105.3 percent.
To be sure, the unusual steadiness of U.S. markets this year might imply an expectation by investors that a world under President Trump wouldn’t experience any significant changes from the Obama administration. Try finding anyone who believes that.
—Bloomberg
Matthew Winkler is a Bloomberg View columnist. He is the editor-in-chief emeritus of Bloomberg News