Markets have so far largely priced in a victory for Hillary Clinton in this November’s US election. But just as we saw with the Brexit vote, markets and polls can get things wrong.

Traders should be mindful of the potential for Trump to win and what impact this could have on the markets.

Most analysts think US equity markets could be rumbled by a Trump win, simply because it’s hard to pin down what a Republican win would mean economically and fiscally. His ‘outsider’ status and vague economic policies could make for uncertainty. 

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Mexican peso

 

Mexico’s peso has become something of a proxy for trading the US election, reflecting broader investor concerns about the vote.

After the first two presidential debates, the peso had notched up a gain of 5%, making it the best-performing currency globally. MXN rallied after Clinton was widely seen to have ‘won’ the debates and Trump’s campaign was put on the defensive after a video showed him making lewd remarks about women.

But if traders learned anything from Brexit, it’s that trading on forex around such a major event is not without risk as volatility rises to a peak ahead of the vote. Markets seem to be pricing in a Clinton win – a Trump surprise would rock the peso. Just as GBPUSD was susceptible to Brexit news ahead of the referendum, USDMXN could be a pair that closely marches in tandem with polls.

Ultimately, the election could be something of a distraction. The peso has shed around a third of its value in the last two years as oil prices collapsed. A rally in crude prices could be more important for this and other emerging market currencies.

Defence & aerospace

 

Hillary Clinton doesn’t look like she’d shy away from a fight, but the consensus is that Trump would be even more pro-military than either she or the current administration.

Trump’s stated ambition is to roll back cuts to defence spending enacted under the 2013 budget sequester. This could mean spending tens of billions of dollars more on planes, troops and ships each year.

Removing the sequester would amount to $500bn more over ten years, freeing up roughly 10% extra per annum.

“History shows that when America is not prepared is when the danger is by far the greatest. We want to deter, avoid, and prevent conflict,” Trump said in September.

In terms of stocks, analysts point to high-tech defence and aerospace contractors - - Raytheon (RTN), Northrop Grumman (NOC), Lockheed Martin (LMT), The Boeing Company (BA), General Dynamics (GD) and L-3 Communications (LLL).

 

Building & infrastructure

 

Trump has promised to build a wall and that would almost certainly be good news for cement giant Cemex (CX), according to analysts at Sanford C. Bernstein & Co. Others that may benefit include Caterpillar (CAT) and the likes of Jacobs Engineering (JEC) and Fluor (FLR).

More broadly, Trump has outlined plans to increase spending on infrastructure by more than $500bn. Clinton has inked proposals that would cost around $275bn over five years and the Republican nominee says he would double that.

Speaking to Fox, he explained: “Well, I would say at least double her numbers, and you're going to really need more than that. We have bridges that are falling down. I don't know if you've seen the warning charts, but we have many, many bridges that are in danger of falling.” Opening the taps on infrastructure spending would certainly deliver a boost to a number of US stocks.

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