US markets not fully buying a Clinton win

Democratic presidential nominee Hillary Clinton greets supporters following a “Get out the vote,” rally at Curtis Hixon Waterfront Park, Wednesday, Oct. 26, 2016 in downtown Tampa, Fla. (Loren Elliot/Tampa Bay Times via AP)

NEW YORK—As the US presidential election moves into the home stretch, financial markets are not fully invested in polls that show a win for Hillary Clinton.

Even though polls show the Democratic candidate with a strong lead over Republican Donald Trump, analysts say investors are waiting until after November 8 to lay their money on the table.

“I don’t think it’s fully 100 percent Clinton is in,” said JJ Kinahan, chief market strategist at TD Ameritrade, who sees a pullback in risk-oriented investments as a sign of investor caution.

READ: How Clinton’s and Trump’s economic prescriptions clash

“Usually people are looking to take on extra risk for reward,” he said. “I think this is one case where people are paring back on their risk.”

Wall Street is thought to generally favor Clinton over Trump for president, and equity markets have hovered at historically high levels since July, with the S&P 500 less than three percent below its all-time peak.

Clinton is considered the more market-friendly outcome, expected to maintain the policies of outgoing President Barack Obama, while the market views Trump as a great unknown, both because of his penchant for controversy and his lack of a record in public office.

Trump has attacked trade partners China and Mexico and accused Federal Reserve Chair Janet Yellen of being a political tool of the Democratic party. Investors are also unsettled by Trump’s seeming embrace of Russian President Vladimir Putin, a sign he may take foreign policy in radical new directions.

Signs of nervousness have been seen in certain trades, analysts say, like the Mexican peso. Trump’s pledge of immigration controls and trade restrictions with Mexico have raised worries over its economy.

The peso sank against the dollar as Trump’s campaign added momentum, but then rebounded on Clinton’s gains following the first presidential debate on September 26.

But it remains down about 9 percent since Trump secured his party’s nomination in May.

On the other hand, another gauge of market sentiment has been the biotechnology sector, which is seen as vulnerable in a Clinton presidency given the Democrat’s vow to address runaway drug prices. The Nasdaq biotechnology index has fallen about nine percent over the last month.

Some analysts say the markets have already assumed a Clinton victory.

“To me, the markets clearly want a Clinton win and they have priced that in,” said Nathan Thooft, senior managing director at Manulife Asset Management.

READ: Speech transcripts show Clinton avoided blaming Wall Street

“That’s what they predict, and that’s what they want. If that doesn’t happen, I feel there’s a great level of uncertainty and possible downside to the markets.”

Some ‘complacency’ over Trump

Indeed, investors are aware that Trump has been consistently underestimated by the political, media and business establishment. Many are also loath to repeat the error of Britain’s June referendum to leave the European Union, when polling supported the market bet on a “stay” vote, only to be thrown into turmoil when Brexit passed.

“There’s a bit of complacency in the market.” said Kathy Lien of BK Asset Management,

“I think the market’s underestimating the possibility of things going wrong as a result of either a Trump victory or the possibility of internal strife in the nation as a result of Clinton winning,” she said.

Briefing.com analyst Patrick O’Hare cited sluggish trading volume, as well as the flatness of the S&P 500, as a sign investors are in “seeing is believing mode” with respect to polls pointing to a Clinton triumph.

One sign of a pickup in caution is the VIX volatility index, also known as the “fear” index. The index has risen the last three days and jumped nearly 8 percent Thursday to 15.36. Still, that is far below the 25.76 level on the day after the Brexit shock.

A big jump in the VIX before November 8 would signal “that the market is fearing something odd,” Kinahan said.