Interactive Investor

Why Trump won't bother the stockmarket

26th July 2016 12:34

Ken Fisher from ii contributor

Check your election fears

With the Brexit vote over, headlines are moving on to 2016's next big political event: America's election! Everyone's worried. Republicans fear Hillary Clinton. Democrats fear Donald Trump. Yet neither can do as much as people think - great for stocks.

America's president has less power than most believe. The constitution is a huge check on power. Only Congress can write laws - not the president and, as the last seven-plus years show, Congress often doesn't do the president's bidding. Presidents can write executive orders, but not change or create laws. If they overstep, the courts can block them. Not just the Supreme Court! America has lower federal courts and 50 states with 50 court systems, each capable of checking an out-of-bounds president.

Consider two recent court decisions. In both cases, president Obama issued rules many thought overreached - one shielding some undocumented migrants from deportation, one regulating hydraulic fracturing (fracking) on federal land. Several states challenged each, arguing Obama stepped on Congress's toes. The courts agreed. Last month, a federal judge in Wyoming quashed the fracking rules, saying Congress didn't give the president power to make them. The next day, the divided Supreme Court affirmed a lower court's verdict against the immigration action.

Stocks don't do sociology

Set aside your opinion of each - stocks don't do sociology. What matters is the legal process. It isn't our right or ability, as non-lawyers, to determine the law. But courts interpret the law and make decisions, and in these cases they decided the president overstepped. Whether you or I agree or disagree, the law is the law, and the law limited Obama.

If Obama is limited, President Clinton or President Trump will be limited. If they overreach, courts can say "Not so fast!" Even judges they appoint can and will rule against them. The judge who decided the fracking case was an Obama appointee, not a Republican judge smacking a Democratic president. Not partisan, not ideological. Opinions about fracking didn't even factor, just judges considering the law and saying "you don't have the power." That's the law doing its thing. Checks and balances.

One administration's deeds are easily undone by the nextEven if courts don't always kill sweeping executive orders, they often delay them into oblivion. Both decisions can still be appealed, but they probably won't be decided before Obama leaves office. The next administration will deal with them. They could fight and win, fight and lose, or just undo the rules! One administration's deeds are easily undone by the next, with a new executive order. These things aren't permanent.

Trust checks and balances - and own stocks

The constitution designed Congress and the Supreme Court to limit the president. Whatever you might fear Trump or Clinton could do to hurt markets, Congress and the courts probably disagree.

So don't fear big campaign talk. Trust checks and balances, and own stocks. Here are two.

Hormel Foods has cratered on profit margin and "peak earnings" fears. Way overdone! Its commitment to new products on top of its eternal American favorites like Dinty Moore, Muscle Milk, Skippy, Spam, Stagg Chili and Wholly Guacamole - plus its global effort - fully justify its PE of 20 times my October 2017 earnings estimate.

Similarly valued is Mondelez International - a name less-known than the blockbuster brands it owns, like Cadbury, Chips Ahoy, Honey Maid, Nilla, Nutter Butter, Oreo, Trident and so many more. High-quality consumer staples regularly shine in maturing bull markets because cautious later entrants are too fearful to own stocks earlier but become comfy with names like these - and bid them up. The time is perfect. Take a bite.

Ken Fisher is founder and chief executive of Fisher Investments.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.