March 23, 2016

Some voters approve of Donald Trump and Bernie Sanders

It Looks Like Trump vs. Clinton

To begin with, it's increasingly likely that Trump will win the Republican nomination. One of the leading British/Irish bookies has The Donald's odds of winning the GOP nod at 2-to-7 as of today vs. 6-to-1 for Texas Sen. Ted Cruz and Ohio Gov. John Kasich. (I trust bookies because they have millions of dollars riding on the election's outcome.)

As for the Democrats, former First Lady Hillary Clinton is currently a 1-to-20 favorite, while Vermont Sen. Bernie Sanders is a 10-to-1 longshot.

In terms of who will win in November, Clinton is a 4-to-9 favorite, but Trump is catching up. His odds of victory are at 5-to-2 today vs. around 50-to-1 six months ago and roughly 10-to-1 back in January.

Why Some People like Trump (and Sanders)

I believe the success of Trump and to a lesser degree Sanders is a byproduct of the Average Jane or Joe's diminished future economic expectations. Many Americans have gotten hit by a failure of their incomes to rise even as the costs of many necessities of life increase rapidly.

Monetary policy has been aggressive for more than six years now and we still have basically 0% interest rates, but the benefits haven't "trickled down."

Instead, they've trickled up to the wealthy who have large balance sheets filled with real estate and stocks. I call this the "Screwflation of the Middle Class" (a subject I discussed in an 2011 Barron's column that I wrote). Our mostly frustrated electorate fears the status quo, so many have moved to either the Right or the Left.

People See What They Want in Trump

To some degree, Trump is a political blank slate. He presents himself as all things to all people, without substantive details about which road he's going to take in his policies.

This is perfect for voters' current zeitgeist. Trump is riding a rising tide of discontent among those who are sick of the way things are, but less concerned about how someone plans to change them.

What Wall Street Wants

The Donald's positions are unpredictable and still somewhat unformed -- his proposed 45% tariff on Chinese imports is but one example.

Wall Street doesn't like such uncertainty, so a volatile stock market seems likely to continue throughout the spring and summer.

On the other hand, Trump's major attribute is that few people (especially politicians) have the ability to make a deal or match The Donald's business acumen and background. So, voters willing to take the leap of faith might be satisfied with Trump as president despite his political blank slate.

As for Wall Street, investors will likely feel less uncertainty if The Donald follows up his broad ideas on trade, immigration, etc., with a blueprint that demonstrates a real, affordable way to achieve his policies. It'd also help if he surrounds himself with strong advisers.

Both of those things would make stocks less volatile than they are today, and markets could prosper in the months ahead. So, I think it's important for Trump to outline more-explicit proposals and disclose which advisers will serve as the foundation for his "team." If and when he does that, stocks might settle down.

The Bottom Line

For now, Trump has contributed to the market's volatility but hasn't dented the major averages.

We remain in a "forgiving" market; investor sentiment is still very bullish even though economic growth is wobbly, geopolitical risk is high and valuations are a bit stretched.

Despite the fact that The Donald's policies are still vague and many uncertainties surround a possible Trump presidency, investors are -- for now -- mostly looking through this lack of predictability. However, that patience could prove to be short-lived.