The Independent Market Observer

With French Election, Potential for Economic Shake-Up

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Apr 20, 2017 3:06:16 PM

and tagged In the News

Leave a comment

french electionIf the U.S. economy isn’t bleeding—at least not a lot, yet—then what is? I closed yesterday’s post with the idea that Europe is the area we should be watching, and the place to start is in France.

Anti-Europe candidates, left and right

The first round of the French presidential election takes place this Sunday. Until quite recently, the general consensus was that the National Front candidate, Marine Le Pen, would do well enough to get into the second round but then be trounced by a more mainstream candidate. Therefore, the thinking went, there was no real reason to worry about the Front's anti-European policies. This was a very reasonable take, in keeping with past French elections and certainly in line with what the polls were saying.

Over the past couple of weeks, however, an anti-European candidate on the left has emerged. Jean-Luc Mélenchon is doing quite well, and there’s now a real chance that two anti-Europe candidates could move on to the second round. We’re within a couple of days of seeing whether one of the fundamental members of the European Union, not to mention the eurozone, is about to rock the political foundations of the largest collective economy on the planet.

Adding to the concern, polls have tended to understate the support for outsider candidates. We saw this in the U.S. election, we saw it with Brexit, and we’ve seen it before in France. With the polls as close as they are, it's highly possible that both Le Pen and Mélenchon will do better than expected. In that case, the French will face a choice between a far-right party and a far-left one—neither of which is pro-Europe in the way previous governments have been.

To frame it in U.S. terms, suppose we had a two-round election, and the final two candidates were Bernie Sanders and Ted Cruz. I’m not suggesting that either politician is comparable to the French candidates, but the example illustrates the breadth of the choice the French may have. No matter who wins, this would be a radical break with the past, not only in France but in Europe as a whole.

What does this mean for the U.S.?

In the short term, not much, but financial markets are likely to be rattled if these two candidates move on.

In the medium term, the situation is more serious. Either candidate could be expected to call for referenda on leaving the eurozone, or even the EU, which would destroy those institutions. Much as we’ve seen in the U.S., a victory by either would bring nationalism back to the center of political discourse. European nationalism, of course, has a bloody history, and the EU was specifically created to bind together France and Germany and make war less likely. A breakdown of that structure would be disheartening in many ways.

I’m not usually one to worry about elections, but in this case, there really may be a systemic shift pending. For all the news we see every day, few things would truly bring about meaningful changes in the world. The first round of the French presidential election could be one of them.

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®