A little over a week ago the financial markets were beginning to discount a Clinton victory as Trump’s past and present actions and comments appeared to poke more holes in his campaign ship.  Lo and behold, FBI Director Comey’s letter to Congress last week indicating a renewed inquiry into Hillary’s emails suddenly took center stage in the campaign. Sadly, this campaign season has focused not on the serious fundamental social, economic and geopolitical challenges facing the country and the world, but rather on the alleged misdeeds done and untruths spoken by the candidates. That the outcome of the election is a contest of whose ship sinks fastest speaks volumes about the quality of the candidates for the highest office in the land and the most powerful position in the world.

Uncertainty is the foe of financial markets. And, as the 2016 election season comes to a close the uncertainty of US political leadership is contributing to the current risk-off positioning of investors. Of course, the prospect of the Fed raising rates in December, the ineffectiveness of central bank monetary policy and continuing geopolitical challenges weigh on the markets as well.  Unfortunately, irrespective of the outcome of the election, we expect uncertainty to continue.  To wit, if Hillary wins there will likely be further scrutiny of her email issues by the FBI and the Justice department, which will distract attention from fundamental issues and add uncertainty to political leadership.  However, a Clinton victory would likely quell the recent market jitters resulting from the prospect of a Trump victory. In the event of a victory by Donald Trump it is likely the market would continue its retreat in fear of Trump’s lack of disciplined thinking and speaking, as well as his promotion of policies that are considered economically injurious, especially considering the relatively fragile state of the global economy. Given the elevated level of equity valuations the sell-off could be more meaningful than expected.

The down-ticket election results play an important roll, especially if the outcome creates legislative control when combined with a win by either Trump or Clinton.  Bookmakers in the UK make Hillary Clinton a 3-1 favorite to win the election. Even if a Clinton victory carried over to a change of control in the Senate, it is highly unlikely that the Democrats will overcome the 60-seat margin held by Republicans in the House of Representatives. However, if Trump were to beat the odds and win the election, the odds of Republican legislative control are greatly improved. In any case, we don’t see the current election causing a legislative epiphany where constructive compromise returns to Congress and serious issues are addressed, debated, and resolved.

In sum, we expect post-election markets to be driven by GDP growth, jobs, valuations, and other fundamental metrics.  As we have noted in previous communications, valuations of traditional asset classes are near historic highs and with the current recovery now approaching its ninth year and economic growth hard to come by, we find the current investment environment increasingly dangerous.

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.

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