The Ides of March was always going to be an important day in the Republican primary race for the presidency, and Tuesday did not disappoint. Marco Rubio dropped out of the race after a big loss in his home state of Florida; John Kasich remained a contender after winning Ohio; Trump added more delegates from Florida, North Carolina and Illinois; and Cruz virtually tied Trump in Missouri.
What does this all mean? Donald Trump remains the clear frontrunner with a commanding lead in terms of delegates won in primaries to date. However, it is still not clear that Trump will secure the simple majority of the 2,470 Republican delegates needed to win the nomination, which could precipitate a so-called “brokered” convention in July. For one, Trump has benefited from a crowded field, meaning Rubio’s dropping out of the race will likely hurt him, especially given that Rubio supporters break 4:1 for Cruz versus Trump. As primaries move west and are predominately closed to only registered Republicans, Trump may find it more difficult to win, as he did in similar contests in Kansas and Oklahoma (which both went for Cruz).
Regardless, we will not know for sure who the Republican nominee is until at least the beginning of May, and probably not even then since Trump would have to win all of the delegates in the forthcoming races to wrap up the nomination by then. That means that the nominee likely won’t be finalized until late spring or even this summer.
What to make of this from an investor’s perspective? If Trump is ultimately the nominee, markets will likely start paying more attention to his unconventional economic agenda, which has included rhetoric about trade wars with China and Japan (which happen to be the biggest holders of U.S. public debt) and a deficit-busting tax policy (which according to the Tax Foundation would add at least $10 trillion to the debt over the next 10 years). If a brokered convention looks increasingly likely, expect markets to react to what could be a messy and highly contentious convention in late July. As my colleague Harley Bassman points out, if past is prologue, we should expect more market volatility in the coming months either way.