Political outcomes have always influenced markets. The presidential election debate between Hillary Clinton and Donald Trump on September 26th, had a special effect on the markets the following day. It seems that the strengthening of the Mexican Peso and the return of the Dow Jones to positive territory, prove that Clinton won. However this is only one debate, the first of three between the Republican and Democrat nominees. This means that Trump can still get back in the game and the markets will wobble even more.
In fact, until the election is settled on November 8th, these debates and their subsequent polls will put the market through a roller coaster. For market fact checkers out there, there is only one truth: investors can expect a lot of volatility while their political counterparts deal with the lies both Clinton and Trump tell the public.
That is why the biggest winners from the debate are neither Clinton nor Trump; neither Democrats nor Republicans. The biggest winners are those who hedged their risks the right way. This is an exercise that can only be done through a longer term outlook, one that can ignore all the battles and instead look towards November 9th to see who will be the ultimate winner.
Although each candidate has the support of millions of voters, investors must hedge looking at probability. They must understand that beyond one of the dirtiest electoral contests in US history, one candidate will win, and one of them has a better chance than the other no matter what happens during the debates. Investors who have realized this are properly hedged, and probably acquired a significant amount of Mexican Pesos, realizing that even if Trump wins, the probability that NAFTA will be repealed or altered is slim.
For now, especially if these investors purchased those Mexican Peso options over the last week, they already enjoy moderate gains. The tables could turn radically over the next couple of weeks, but then again the issue is who will win on November 8th, and not who will claim victory over the smaller battles we will witness until then.