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Investors are watching the polls, have a clear election favorite

When Wall Street was "mildly confident" Clinton would win, markets went up, but as Trump's odds improve, it pushes markets lower. It's worth appreciating why.
People pass the New York Stock Exchange, June 24, 2016 in New York, N.Y. (Photo by Richard Drew/AP)
People pass the New York Stock Exchange, June 24, 2016 in New York, N.Y.
Late last week, when FBI Director James Comey took a step towards intervening in the presidential election, it didn't just cause a freak-out among campaign observers: it also jolted Wall Street. Almost immediately after the Comey news went public, U.S. markets fell quickly and sharply, only to gradually recover once it became clearer the FBI director's letter was more anodyne than it initially appeared.The sudden drop, however, served as an interesting reminder: Donald Trump may be a New York billionaire, but investors around the world desperately hope he loses.The Wall Street Journal reported overnight that Wall Street fell yesterday at least in part because of fears that the Republican presidential candidate might win.

Tightening polls in the U.S. presidential race also continued to steer market sentiment. A Washington Post-ABC News tracking poll showed Republican candidate Donald Trump leading in the U.S. presidential race on Tuesday, sparking uncertainty after investors had broadly priced in a victory for Hillary Clinton. [...]"[E]lections are the main focus," said Philip Marey, U.S. strategist at Rabobank. "Until last Friday, markets had become a bit complacent and most people thought it would be very difficult for Trump to win," he said.Now, global investors are worried about the uncertainty of a Trump presidency in terms of policy and the possible implications for trade, he said.

Marketwatch published a related report this morning, noting that "signs the U.S. presidential election on Nov. 8 will be much closer than anticipated" have rattled investors. When Wall Street was "mildly confident" Clinton would win, markets went up, but as Trump's odds improve, it plays a role in pushing markets lower.It's worth appreciating why.The Philadelphia Daily News had a good piece on this several weeks ago, explaining that when it comes to the economy, trade, and international affairs, Trump creates the one thing investors avoid: uncertainty.

Why does the stock market rise and fall with Hillary Clinton's polls? Why don't investors identify better with Donald Trump? asks James M. Meyer, chief investment officer at $1 billion-asset Tower Bridge Advisors in West Conshohocken, in a note today to clients of Boenning & Scattergood."Mrs. Clinton has historic ties to Wall Street, but her policies clearly are not very pro-business," Meyer writes. "She wants to raise taxes, especially on the investor class... She has come down hard" on high corporate drug prices. "In short, she is a die-hard tax-and-spend liberal.... Much of what she proposes would stifle growth... the same way as has been the case during the Obama administration..."But with that said, Mrs. Clinton is experienced, stable and a known quantity."

Obviously, this is not an argument from an enthusiastic Clinton admirer, but it's a perspective that I suspect many on Wall Street agree with: when it comes to the global economy, Clinton will be responsible and measured. It's hard to even imagine her taking reckless risks and dangerous gambles that could do serious and lasting harm to financial markets around the world.And then there's Donald Trump, who's on record saying he doesn't consider U.S. trade wars with China and Mexico to be a big deal. (Trump's exact words in May were, "Who the hell cares if there's a trade war?")Over the last few generations, investors do better when there's a Democrat in the White House, but when it comes to Trump, that dynamic is even more potent. The Republican intends to tear down the nation's current health care system, and no one knows what he'd replace it with. He wants to tear up trade deals and international alliances, and it's hard to predict how (or whether) he'd pick up the pieces. Trump intends to push trillions of dollars in tax cuts, which he can't begin to pay for, and the projected effects of which are not encouraging.All of this would have a sweeping impact on the economy and financial markets. Can you really blame investors for preferring a more Obama-like status quo?