What if Hillary Clinton had won? A year on from the inauguration of Donald Trump as president, Democrats are if anything more upset than they were then. Investors, not so much. So, where would markets be if Mrs. Clinton, not Mr. Trump, were in charge of the presidential Twitter account?
A few things are clear. There wouldn't have been a huge corporate tax cut. Small business confidence, based on hopes of less red tape, wouldn't have leaped to the highest since Ronald Reagan's first term as president. Banks wouldn't be expecting an easy ride from regulators. And there would be a lot less fiery rhetoric from the White House.
But let's look at the details. Many of the market-moving changes since the U.S. presidential election would have been just the same. Most important among them: The global economic rebound started before voters picked Mr. Trump, and would surely have continued. That rebound has driven up stocks and bond yields world-wide, and the U.S. is only in the middle of the performance table. From the day before the election, Italy, France, Germany and emerging markets have beaten U.S. stocks in dollar terms, including dividends, while Canada lags well behind.
Finding the cause of any given price move in a market with millions of participants is an imprecise art, and it is easy to confirm your beliefs. After all, Quinnipiac University polling shows 65% of Republicans strongly approve of the way Mr. Trump is handling the presidency, while 86% of Democrats strongly disapprove. Every fact is seen through partisan glasses.
Yet, even die-hard Clintonites are hard-pressed to argue that stocks would be higher if Mrs. Clinton sat in the Oval Office. Lady Lynn Forester de Rothschild, who runs one of the Rothschild family investment companies, E.L. Rothschild LLC, hosted high-profile fundraisers for her friend and was distraught when she lost the election, but accepts investors have welcomed Mr. Trump's policies.
"The market's definitely liking what Trump is doing," she says. "For now."
Mrs. Clinton wouldn't have focused on tax cuts and deregulation. The corporate tax cuts will boost earnings by about a tenth, supporting stock prices and boosting returns from U.S. investments. Gains from deregulation are hard to quantify but should help small businesses and banks the most.
Immediately after the election, investors priced in much of the Trump agenda, with smaller companies, banks and companies which pay a lot of tax (and so would benefit most from cuts) far outperforming the wider market for a few months. Yet, much of it didn't last.
From the election to Wednesday's close, the Russell 2000 index of smaller companies and the S&P 500 both returned 35%, including dividends. Both were great investments, but there was no extra benefit for smaller-company investors. Stocks outside the U.S. made the same 35%.
High-tax companies have done well since the tax cuts gained support in the fall, but according to Goldman Sachs have exactly matched the S&P 500 since the election.
Surely shareholders in banks, at least, can give Mr. Trump credit for their whopping 57% return? Even here the waters are muddied by rising bond yields. Bank shares have moved closely with 10-year Treasury yields, which are entirely unaffected by talk of lighter regulation. Much of the bank share-price gains are down to the same prospect of higher inflation and higher interest rates that pushed up bond yields.
So would inflation and interest rates be lower under a Democratic president? It is possible. Mr. Trump's election enthused CEOs and small-business owners, and there is typically a link between them feeling positive and stronger hiring and capital expenditure. On the other hand, there has been a similar pickup in hiring and corporate investment in other countries. The U.S. would have gained from the same global growth pattern under Mrs. Clinton, too.
"Relative to what's happened I'm not sure the economics would be that different [under Mrs. Clinton]," said Jan Loeys, senior adviser at J.P. Morgan. "The rebound in the rest of the world would have happened anyway."
The technology sector adds to the confusion. Silicon Valley poured cash into Mrs. Clinton's campaign, and tech shares tumbled along with other expected Trump victims such as Mexico and Obamacare-linked stocks after the election. This makes sense: Leading tech companies already have low tax rates, so gain little from tax cuts, and will be hit by Mr. Trump's clampdown on visas for skilled foreign workers. Yet, the tech sector rebounded and has returned 50% since election eve. Perhaps it would have done even better if it had its favored candidate in the White House, and so pulled up the S&P 500 even more.
What of the future? Vincent Mortier, deputy chief investment officer at France's Amundi, worries that Mr. Trump is creating long-term risks for short-term gain. Tax cuts boost stocks now but could worsen inequality and so put future political stability at risk. Deregulation around energy raises the danger from climate change. And nationalist talk makes an eventual trade war more likely.
America under Mrs. Clinton would have had no corporate tax cut and no deregulation, and probably be a bit less lucrative for investors. But it would be wrong to give Mr. Trump much credit for the faster economy last year, and it is many years too early to know if his policies will provide a lasting boost.
Write to James Mackintosh at James.Mackintosh@wsj.com
(END) Dow Jones Newswires
January 18, 2018 12:29 ET (17:29 GMT)