Would President Donald Trump be good or bad for your stocks?
The stock market is a nervous animal that can easily find a reason to sell off sharply, but so far it has taken the rise of Trump in stride.
The Standard & Poor's 500 index has climbed 6 percent since Super Tuesday, on March 1, when Trump's victories showed him to be the front-runner for the Republican nomination. And it has kept rising as Trump has built momentum and as Hillary Clinton has suffered setbacks, like the release last week of a report by the State Department's inspector general that was critical of her use of a private email server. Yet the major U.S. markets are riding high, just off all-time records.
The relatively high valuation of the stock market — it is trading at 20 times historical earnings — indicates that investors do not see any big threats from Trump's stated policies.
"How much do you think he will get enacted?" said Jim Paulsen, chief investment strategist at Wells Capital Management, who is not showing signs of worry. "Politicians are great at telling you they are very important."
But it is not hard to conjure up ugly events in a Trump presidency. His trade policies could damage the economy and lead to job losses, and his fiscal policies could create a far larger deficit, adding trillions to the national debt. Stocks and mutual funds held by households have increased in value by more than $8 trillion, or 60 percent, during the past five years. If the stock market did make a big move down before the election, it would be felt on Main Street and your street.
So why is Wall Street not more worried? And should ordinary investors be worried that Wall Street is not worried?
It may be a little too early to tell if the stock market is being cavalier about Trump. Investors do not make big decisions on the basis of a few close polls more than five months before the presidential election. But polls that occur nearer to Election Day — and that show Trump well ahead — would more clearly test what investors think of his becoming president.
Another big reason Wall Street appears unfazed may be that investors still expect Clinton to win. Her policies would not be a big departure from those of President Barack Obama. A clear sign of Clinton's support on Wall Street is the large amounts of money that she has been raising from financial executives.
While center-left policies may not please some on Wall Street, the economy has recovered under Obama. And, if anything, the economy could get stronger, not weaker. House prices are strongly rising, consumers are borrowing without becoming overindebted, and the banking sector looks safer than it has been in many years.
Then there is a belief on Wall Street that a President Trump would end up being no more than a rougher-edged version of Mitt Romney when it comes to policy. In other words, Trump would dial down his combative policies — like blocking imports from China and Mexico — once those views got him the votes needed to win the presidency. The other way this theory works: Congress and the courts prevent him from pursuing goals that could create instability, like the mass deportation of illegal immigrants.
A related school of thought says that limited trade battles would not do much damage to the economy — and might even help it in the long run. David Rosenberg, chief economist and strategist at Gluskin Sheff, notes that Ronald Reagan placed tariffs on some electronics imports from Japan, the China of that era. "If the markets were to sell off because of his election success, I'd tell clients to find another reason to be bearish," Rosenberg said.
Even if Trump ended up compromising on many of his antagonistic positions, the residual tension could cause harm. The global economy has been vulnerable to political and economic shocks emanating out of one region (Europe) or country (China). The stock market dropped more than 10 percent last year after China devalued its currency by a small amount, for instance.