What would President Trump mean for the stock market?
Once a far-fetched notion, the question is becoming serious business for investors now that Donald Trump is the front-runner for the Republican nomination.
Trump's bid "is becoming increasingly legitimate" on Wall Street, said Mark Luschini, chief investment strategist at the brokerage firm Janney Montgomery Scott.
Investors generally aren't yet trading specific stocks in anticipation of a Trump presidency, analysts said, because Trump still must win the nomination, get elected to the White House and then try to push his programs through Congress.
Even though it appears Trump would face Democratic front-runner Hillary Clinton in November, "it's a little too early to make investment decisions based on Trump's standing, even if you have to now take him seriously," said Jerry Braakman, chief investment officer of First American Trust in Santa Ana.
But Trump nonetheless will have an effect on trading as his march toward the nomination — and widespread confusion about exactly how he would change policy — adds to the volatility that's rocked the stock market this year.
"Things seem unlikely to calm down," said Brad McMillan, chief investment officer of the brokerage firm Commonwealth Financial Network. "Expect volatility to continue through the election and probably well beyond."
For now, money managers and other investors aren't sure how a President Trump could affect the economy, taxes and foreign trade and, therefore, the outlook for corporate earnings and stock prices, analysts said.
The New York real estate mogul has laid out policy positions on a few topics such as healthcare, trade with China and taxes, but those plans have been assailed by critics as vague, grandiose or politically unfeasible.
Trump's detractors also contend that the billionaire's plans — especially his proposals to cut individual and corporate taxes and impose major tariffs on Chinese exports to the United States — would cost trillions of dollars and send the U.S. economy into a tailspin.
"His domestic policies would lead to recession," Mitt Romney, the Republican presidential nominee four years ago, said in a scathing attack on Trump last week.
That's debatable, but Trump's ascendancy in the presidential race "is a new phenomenon for investors," said Mike Thompson, managing director and chairman of Standard & Poor's Investment Advisory Services.
When it comes to how Trump could affect the markets, "everyone I talk to says, 'I have no idea,'" Thompson said. "They don't know what to make of it."
That doesn't stop Thompson and other analysts from making some educated guesses about which stock-market sectors could be under the spotlight if Trump is elected president. They include:
• Defense. More spending on defense is among Trump's top priorities so "it is likely defense companies would do better," Braakman said. That could include major contractors such as Lockheed Martin Corp., Northrop Grumman Corp. and Boeing Co.
• Healthcare. Trump calls for a repeal of the Affordable Care Act, or Obamacare, and wants to allow full interstate competition for the sale of health insurance.
That scenario would disrupt one of the brightest sectors of the stock market. The S&P Healthcare index has soared 86% in the last four years.
"Obamacare has been a boon for the healthcare industry so any claw-back of that [law] could have a negative impact on healthcare" stocks, Braakman said.
• Trade. "Nobody knows more about trade than me," Trump told supporters in Maine on Thursday. But Trump's plan to impose tariffs on exports from China, Mexico and other nations is raising fears of a trade war and harm to the U.S. economy.
American shoppers might see higher prices for goods from those countries, and China and other nations might retaliate with tariffs of their own, harming U.S. companies' exports to those nations, critics contend.
Trump's tariffs "would penalize global companies who are trying to be competitive globally," Meg Whitman, chief executive of Hewlett Packard Enterprise Co. and a former California gubernatorial candidate, told CNBC last week. She too said the moves "would sink this country into a recession."
• Taxes. Trump wants to cut individual income taxes and simplify the system with four brackets: 25%, 20%, 10% and 0%. The highest of the seven current brackets is 39.6%.
That could boost Americans' so-called discretionary spending, which would bode well for stocks in the auto, restaurant and entertainment sectors, to name a few.
Trump also would slash the 35% corporate rate to 15%. But businesses would lose tax breaks on earnings overseas and various unidentified "loopholes that cater to special interests," according to a news release outlining his tax plan.
He also wants to stop U.S. companies from leaving cash abroad to defer paying U.S. taxes on foreign-earned income. If enacted, that would be a huge unknown for stocks of U.S. multinational companies.
Trump also has denounced so-called corporate inversions, in which a U.S. company merges with a foreign company to take advantage of lower tax rates overseas. Drug giant Pfizer Inc., for instance, is doing such a deal with Botox maker Allergan of Ireland.
"You could see a President Trump taking direct aim at any of the companies that have executed a corporate inversion, to make an example of someone," McMillan said. "That would have an impact on others thinking of making that business decision."
In the meantime, the election's effect on the market will start to be felt in earnest "right after the nominations are set" this summer, Thompson said. "Then investors will start making decisions based on what they believe will be the outcome."
Investors already have struggled this year with worries about a slowdown in China's economic growth, the sharp decline in global oil prices and uncertainty about how quickly the Federal Reserve Board will raise interest rates.
Now, with Trump's unexpected success, "that instability in the market is being amplified," Janney's Luschini said. "It's clearly an influence even though it's difficult to attribute X percent of the market's changes to presidential politics in an election year.
"There's always something out there that affects the market and this is one more thing."
But the growing realization that Trump could be a presidential nominee, he added, "is one more thing on steroids."