Does it matter to the market who wins the election?

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Perhaps as a sign of the contentious election, many views about how the results will affect the nation and the economy have emerged. Some question whether the results will be clear-cut or throw the country into crisis.

“While we believe the election is unlikely to impact the overall direction of the markets, there will likely be some short-term uncertainty, and there certainly could be effects on industry groups and individual companies,” said Columbia Threadneedle Global CIO Colin Moore.

“Elections cause a lot of volatility and anxiety beforehand, and then not much of substance for the broad economy and financial markets afterward,” he added.

"The election cycle will increase short-term volatility, but it won’t have much influence on market averages over the long term," said Columbia Threadneedle Global CIO Colin Moore.

Campaign promises of “policies and programs” rarely come to fruition as planned. “Long-term market and economic direction are about what actually happens, and in that respect, a single election is almost irrelevant to our long-term outlook,” Moore said.

The reason elections are irrelevant to the long-term outcome is the economy is fundamentally unchanged no matter who wins. “In some important categories there is little material difference between the two main parties,” he said.

But this election appears to be different than most. “We are in new territory no matter which party wins the presidency,” according to Don McArthur, senior investment strategist and director of equity research at Commerce Trust Company. “We think no matter who is president, we’ll see an increase in infrastructure spending, but that’s probably not going to happen until 2021.”

Even though everyone favors infrastructure spending, he said, “Neither party wants to give the other party a win until they must.”

In the next two years he expects a deal. “It’s an area that could benefit no matter which party takes office,” McArthur said.

And China will be of interest. “Both parties want to push back against China now,” he said. “There was success in 2020 in showing how unfair our trade position has been with China, so it is likely both parties will continue to press for change. Though how they go about it may differ.”

Adding on Moore’s point about campaign promises fizzling, McArthur said, even if Joe Biden wins and Democrats take both houses of Congress,many moderate Democrats may not want to vote for such a large increase in taxes.”

If the Democrats don’t take the Senate, McArthur added, expect “few major changes on the legislative front because of the congressional deadlock, but more regulation through appointments and executive orders as well as a potential infrastructure spending bill.”

Perhaps the biggest problem is Nov. 3 may not yield final results in all elections. “The COVID-led trend to mail-in ballots and the timing of their counting (often after Election Day) could weigh heavily on election results.”

And while “the equity markets wouldn’t react well to a disputed election result,” McArthur said, it's not “prudent to make investment decisions based on the potential for that outcome.”

BNP Paribas Chief U.S. Economist Daniel Ahn said, if the results are “fairly clear cut,” and majorities in key states and the Electoral College are sufficiently wide to avoid concern, “then simply ‘contesting’ the election does not automatically translate into a constitutional crisis. The election will need to be sufficiently close that an alternative reading of the election outcome is plausible, and moderate lawmakers/election officials/judges and the ‘silent majority’ in the general public are willing to accept that both sides have a defensible claim to victory.”

A Democratic sweep could offer “a more favorable municipal bond environment,” according to Joseph Krist, publisher of Muni Credit News. “Increased flexibility, additional stimulus, a likely top marginal tax rate increase, all would drive additional supply and demand for municipal bonds. Stimulus would support credits and by driving economic activity would be credit positive as well.”

Still unsettled are President Trump's nominations to the Federal Reserve Board of Judy Shelton and Christopher Waller. The full Senate has yet to schedule a vote because it remains to be seen whether Shelton would win confirmation.

Shelton’s past writings have questioned the independence of the Fed, as well as the need for deposit insurance.

Susan Collins, R-Maine, and Mitt Romney, R-Utah, have both said they will oppose Shelton's nomination.

If two more Republicans oppose Shelton, it will likely kill the nomination. But the Senate could still hold a vote on Waller’s nomination separately. Five Democrats on the Senate Banking Committee voted with Republicans to advance his nomination to the full Senate, suggesting he could win confirmation.

It is unclear what the Senate will do about the nominations and when.

And with the distraction of the elections, and the possibility of a long wait for the outcome of some races, and the expedited confirmation process for the Supreme Court nomination of Amy Coney Barrett, the fed nominations are likely on the back burner, said Peter Ireland, an economics professor at Boston College and member of the Shadow Open Market Committee.

"My sense is that there's decent bipartisan support for Chris Waller. So a vote on his confirmation could happen, even after Election Day, especially if Republicans hold the Senate," he said. "Unfortunately, Judy, at this point, looks like a real long-shot, unless on the evening of Election Day it looks like there's been a Republican landslide."

American Banker's Neil Haggerty contributed to this article

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