US stocks will slump if Trump wins presidential election: Credit Suisse

US stocks could plummet 15pc if Donald Trump gets to implement his policy platform, according to Credit Suisse.

Republican presidential candidate Donald Trump leaves a rally at Grand Junction Regional Airport on October 18, 2016 in Grand Junction Colorado. (George Frey/Getty Images/AFP)

US stocks could slump by as much as 15 per cent if Republican presidential hopeful Donald Trump wins the US election, according to research published today by Credit Suisse.

The investment bank modelled a scenario where Trump won the election and was able to fully implement his protectionist trade policies, including tariffs on imports from China and Mexico, withdrawing from the Trans-Pacific Partnership and renegotiating the North American Free Trade Agreement.

This could have the consequence of a global trade war, Credit Suisse said: “The operating environment for US corporates, and corporate earnings, could deteriorate significantly.”

This deterioration would be only partly offset by Trump’s plan to cut corporate taxes from 35 per cent to 15 per cent, according to the bank.

“We believe a full implementation of Trump’s policies would result in a 10 per cent to 15 per cent decline in the S&P500,” Credit Suisse said.

But the bank says the probability of such an event is “very small”.

If Trump were to win the election but only partially implement his policies, Credit Suisse says there could be an upward surprise in inflation, which could be “more supportive” for stock valuations.

The latest Wall Street Journal/NBC News poll puts Trump’s support at 37 per cent of likely voters, lagging well behind Democratic rival Hillary Clinton on 48 per cent.

The prediction comes ahead of the third presidential debate of the campaign, scheduled to begin at midday (AEDT).

By contrast, if Clinton becomes president after the November 8 election, Credit Suisse says its core views on equities would be “more or less unchanged”.

“We assume a Clinton presidency would represent a period of relative continuity with the Obama administration,” the bank said.

“We think there might be a post-election bounce back in GDP growth and this ordinarily is good for equities.”

Historically, stocks have tended to post better returns in eras of continuity, when elections do not result in a change of presidential party affiliation, Credit Suisse noted.

Some short-term volatility after an election is not unusual. “Since 1976, the S&P500 fell in the month after the election 50 per cent of the time,” the bank said.

“Historically, the absolute moves of equities (irrespective of direction) tend to be on average 2 percentage points bigger in the one month and three months after the elections, than in the one month and three months before the election.

“Critically, we can see in the aftermath of an election, market performance is not that different from its norm.

“Markets tend to be, on average, up 7.6 per cent in the following year compared to 8.1 per cent annual over the whole period considered [since 1976].”

The research follows a prediction from Commonwealth Bank currency strategist Richard Grace that under a Trump administration, the Australian dollar could fall by up to 10 per cent against the US dollar as China’s economy takes a hit from higher US tariffs.

UBS also said last week that both candidates’ economic plans would boost US growth “modestly”, but that Trump’s tax plans would add $US7.3 trillion to the country’s deficit over 10 years, while Clinton’s plan would cut the deficit by $US1.6 trillion.