Global markets always pay close attention to U.S. presidential elections for hints about possible shifts in key policies or the public mood. But few contests have mattered so much to so many as the battle between free-swinging Republican candidate Donald Trump and Hillary Clinton, his more temperate Democratic opponent.
That's mainly because Mr. Trump's populist diatribes against the North American free-trade agreement (NAFTA) and other international trade deals, China's trade and currency practices, illegal immigrants and the flight of manufacturing jobs appear to be resonating with a surprisingly large number of American voters.
After the first of their three televised debates, he remains the clear underdog. But the odds of an upset against a disliked opponent can no longer be dismissed out of hand. As of Sunday morning, Nate Silver's FiveThirtyEight.com gave Mr. Trump a 32.9-per-cent chance of winning the presidency.
This week, the No. 2 candidates on the tickets will get their spin in the spotlight. While their sole televised debate will undoubtedly lack the fireworks of the Trump-Clinton faceoff, investors may actually learn something about the sharp policy differences that divide the two camps. It's these platforms – not soundbites about a former Miss Universe – that could propel or pummel markets over the next four years.
Among other concerns for the global community, Mr. Trump has vowed to impose punishing tariffs on Chinese goods and stuff made abroad by U.S. companies for their home market, which could spark recession-inducing trade wars. And he has said he would consider forcing creditors to take a haircut on their Treasury bonds to reduce the national debt.
All of this has ratcheted up market jitters. But when it comes to the potential impact on actual investment strategies or portfolios, nothing sets off warning sirens like an attack aimed at the world's most powerful central bank.
Janet Yellen's Federal Reserve has been so good for equity investors that U.S. economist Ed Yardeni has dubbed her the "fairy godmother of the bull market." The Standard and Poor's 500 index is up nearly 25 per cent since Ms. Yellen became Fed chair in February, 2014. So when Mr. Trump used the first of three TV debates with his Democratic rival last week to repeat his accusation that a politically motivated Fed is deliberately keeping a lid on interest rates to aid the Democrats, it was bound to rattle some nerves.
"No one likes to see their godmother get beat up by a bully," Mr. Yardeni said in a report on the eve of the debate.
Then there was Mr. Trump's contention that the Fed's easy-money policies are responsible for inflating a "big, fat, ugly [asset] bubble" that wouldn't survive even a slight tightening tilt by the central bank.
Some market pros share that view. But even Republican-minded investors who applaud Mr. Trump's more mainstream conservative proposals to slash taxes and roll back certain post-2008 financial regulations shudder at the prospect of a shoot-from-the-hip White House occupant saying or doing things that might trigger market mayhem.
The rest of the first presidential debate didn't venture beyond the well-known bullet points and personal assaults that have characterized the nasty contest so far. Anyone looking for a robust discussion of crucial policy differences was bound to come away disappointed.
That leads us to the vice-presidential running mates. It's a safe bet that only a small fraction of the record audience that took in the Trump-Clinton free-for-all on various media platforms will bother watching Democrat Tim Kaine and Republican Mike Pence square off on Tuesday.
That's unfortunate, because the Democratic Senator of Virginia and the Republican Governor of Indiana seem likely to put more of a focus on policy choices that matter to investors.
That's a marked change from some previous campaigns when the No. 2 spots on the party tickets were occupied by pugnacious types such as Dick Cheney and current Vice-President Joe Biden. Their job was to serve as attack dogs for the presidential candidates, who were supposed to act, well, more presidential.
But as everyone now knows, Mr. Trump needs no help when it comes to skewering opponents. What he badly needs is someone who can convince voters that there is actual substance behind the bluster. It would be a tough job even for a politician more gifted than Mr. Pence, a one-time talk-show host who spent a dozen years in Congress opposing every federal stimulus plan, but who did support free-trade deals.
Mr. Kaine, meanwhile, is the only person on either ticket with a degree in economics. And unlike his counterpart, he can tout a decent economic track record when he served as Virginia's governor from 2006 to 2010.
For those who prefer insults to insights, the presidential wannabes will go at it again next Sunday. Mr. Trump says he may hit "harder" this time after pulling some punches in the first tussle.
The markets have already signalled their own preference, responding to Ms. Clinton's solid performance in the first debate with a mild rally.
In recent decades, they have tended to fare better during Democratic administrations anyway. The S&P 500 has climbed 140 per cent with Barack Obama in the White House. And Ms. Clinton's promise to adhere to the same essential policies seems like the least risky option for the next four years.