-
JPMorgan says the best-case scenario for stocks is a divided Congress, regardless of the winner.
-
Such an outcome would make it more difficult for both candidates to implement proposals.
-
“Under either stalemate scenario, we believe stock prices will move higher,” the company wrote.
Regardless of the next president, JPMorgan expects stocks to rise if the US elections produce a divided Congress.
“In either stalemate scenario, we think stock prices will move higher as we remove uncertainty, volatility declines and hedges disappear, with investors refocusing on the Fed at a time when the economy and corporate earnings remain resilient,” said analysts under led by Dubravko Lakos-Bujas. in note published on Sunday.
Polls have shown a neck-and-neck race between Kamala Harris and Donald Trump since Tuesday morning. Without a clear outcome, Wall Street could be headed for two starkly different investment environments, given the contrasting policy ideas of both candidates.
However, the deadlock in Congress would make it more difficult for both presidential candidates to implement their proposals as easily as they would in a Democratic- or Republican-controlled Congress.
“I think the stock market should be concerned if we get a Democratic sweep or a Republican sweep,” market veteran Ed Yardeni told Bloomberg TV last month. He added: “So I think the stock market will do best if we basically vote for gridlock, that whoever is in the White House just doesn’t have open season to do whatever they want.”
According to JPMorgan, investors have been preparing for the possibility of a red or blue sweep. For example, rate-sensitive consumer stocks underperformed ahead of a possible Trump victory. The Republican candidate has promised to impose far-reaching taxes on all US imports.
Under a Trump presidency and a divided Congress, JPMorgan expects domestic and energy stocks to be more sensitive. CHIPS Act beneficiaries and multinational companies are more sensitive under a Harris presidency and a divided Congress.
If a deadlocked Congress helps reduce uncertainty about extreme policy changes, investors can refocus on trading macroeconomic factors.
As JPMorgan noted, all eyes will be on the Federal Reserve this week. The central bank is expected to cut interest rates by 25 basis points this week.
Read the original article on Business Insider
