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Protectionist presidency poses biggest risk to US equities – Rathbones

Clinton conundrum

While Smith does not think a Clinton presidency will generate the degree of uncertainty that will weigh on US valuations if Trump wins, he predicts she could make life tougher for Wall Street and many US companies as a result. This possibility is even more distinct if Democrats are able to regain majorities in both the Senate and the House. 

“Here investors face a temporal conundrum,” said Smith. “A Democrat clean sweep is most likely to enact policies that will support those left behind by technological change and globalisation, and reverse the growing gap between the incomes and wealth of the rich and the poor, thereby stemming the rise of popular protectionism that is arguably one of the greatest threats to investment returns over the next decade or more.”

“But of course, in the short term, these policies are unlikely to help companies’ bottom lines, either by increasing their average tax rate or by raising labour costs,” he stated.

‘Election hedges’

To protect against the potential downsides of a Clinton victory or a Trump victory, Smith recommends looking for stocks that would benefit from both Democratic or Republican initiatives like companies that would benefit from defence spending and discretionary stocks.

Both candidates have also discussed their plans to increase infrastructure spending substantially, which makes that area another attractive place to invest, Smith said.

Lastly, Smith pegs regional banks as a potential beneficiary if Trump is able to ban Wall Street from Main Street by reinstating the Glass-Steagall Act or if Clinton decides to introduce an anti-Wall Street caucus around Senator Elizabeth Warren.

Kristen McGachey

Kristen joined Last Word Media and the world of financial journalism in April 2016, leaving behind a career in a legal publishing firm as a senior researcher turned assistant editor. This native Angelino...

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