Hello and thanks for tuning in. With the presidential election season in full swing, candidates on both sides of the aisle are proposing bold changes they believe will win votes and secure the Oval Office this year. In our view, although these campaign promises may stoke fear, history shows candidates’ talk on the election trail rarely become reality.
Today, Republicans fear Clinton doing extraordinary things. Democrats fear the same of Trump. In reality neither will do as much as people think. The Constitution’s checks and balances were designed to limit executive power. Congress and the Supreme Court were designed to limit the president from doing whatever he or she wants outside of the law. The other two branches limited Obama, and they’ll limit a President Clinton or Trump too.
Presidents simply can’t do much unilaterally either. Only Congress can write and pass laws. Even when the president’s party controls Congress, it isn’t easy to pass sweeping reform. The president can bypass Congress with an executive order, but those too are subject to judicial review. The president can issue Executive Orders or amend rules through regulatory agencies, but this isn’t unchecked power. The Constitution limits the scope of presidential rulemaking, and the judicial branch has a long record of keeping things in check. Not just the Supreme Court—the lower Federal Courts and the 50 state court systems are also capable of checking an overreaching president.
However the presidential contest goes, the Beltway should remain bullishly gridlocked too, keeping legislative risk low. Structurally speaking, neither party appears poised to win a supermajority. A Congress lacking a supermajority is unlikely to pass anything sweeping or particularly onerous. Whoever wins the presidency will likely have an opposing Congress or a thin majority, incapable of passing much.
When it comes to campaign promises and political grandstanding, what markets dislike isn’t the lofty rhetoric itself, but the uncertainty it creates. A new president inevitably brings uncertainty—but uncertainty falls considerably after November 8. Whether it’s President Clinton or President Trump, uncertainty fades once there’s a clear winner—and that’s bullish for markets. And especially so when legislation-dampening gridlock persists. That’s all for this edition. For more, please visit marketminder.com.