The S&P 500, often considered the best barometer of the health of US equities as an asset class, has shed more that 5% over the past two and a half weeks.
Even after the November Federal Reserve rates decision was successfully navigated without a shock rise, the index stayed well below where it was in mid October.
The rising chance of a Donald Trump victory on Tuesday has largely been accepted as the culprit for the sell-off. Markets like middle of the road politics and familiarity, which is exactly what Hillary Clinton provides, and the opposite of what Trump appears to offer.
The prospect of anti-trade protectionism is a very real one of course, and could have serious implications for US companies’ prospects.
Given this, there seems likely to be the classic relief rally if Clinton manages to hold off Trump’s late charge for the finishing line.
We only have to look at the market reaction to the Brexit vote as an example of how quickly stocks can bounce back from ‘Armageddon.’
Perhaps a binary assessment of 'Trump is bad for US equities', 'Clinton is good' is far too simplistic though. Even in the event of a Trump win, once an initial bout of negative sentiment passes, rational thinking could take hold as investors snap up what begin to quickly look like bargain stocks.
There is also the small matter of the US Congress. The system was designed specifically to act as a check and balance, so whether Trump or Clinton wins their immediate impact will be kept in check by the House and Senate.
We only have to look at the market reaction to the Brexit vote as an example of how quickly stocks can bounce back from ‘Armageddon.’ Both the FTSE 100 and FTSE 250 regained all the ground lost on 24 June quickly once the initial panic dissipated.
Underlying economic conditions in the US are relatively robust of course, with the recent GDP growth report of 2.9% being healthy by developed market standards, and unemployment persistently under 5%.
Something that cannot be discounted however, is a contested result. This scenario would be unambiguously bad for US equities, so if your assessment is that this is likely you may well want to pare back your allocation.
Christophe Foliot, head of international equities at Edmond de Rothschild Asset Management, is one professional investor who sees shades of grey rather than black and white in the situation.
“Market trajectories will depend on the ability of the winner to roll out his or her programme,” he said. “A Clinton victory, with a divided Congress, should limit market volatility as investors will be relieved to see the administration having to adopt a culture of conciliation and half measures. As a result, the financial sector could avoid any further increase in regulatory burdens. The pressure would also be taken off healthcare companies which could then perform well given the sector’s upbeat earnings prospects.”