During this unprecedented election season, financial advisors would do well to follow not only the presidential contest but also the broader race for control of the Senate and House of Representatives.
"The election is all about control of Washington, D.C.," said Vince Reinhart, chief economist at Standish Mellon Asset Management and former Fed official and economist, speaking at a BNY Mellon-sponsored luncheon.
The latest polls give Hillary Clinton an 85% to 90% chance of winning the presidential election, but even if Clinton is victorious, her accomplishments as president will depend on what happens in the congressional elections.
"More important than who is in the White House is who controls the Senate," said Michael Holton, senior research analyst at The Boston Company Asset Management.
A Democratic sweep of the White House and both houses of Congress, for example, could mean reform, rather than repeal, of the Affordable Care Act (ACA) and a stimulus program to boost the economy—Clinton has proposed a $275 billion infrastructure program.
"A single party government can work pretty quickly," said Reinhart, recalling the roughly $800 billion economic stimulus package, known as the American Recovery and Reinvestment Act of 2009, which was passed by a Democratic Congress and signed into law by a Democratic president less than two months after taking office.
In this election cycle a Democratic sweep could mean another round of stimulus, though not as great as the one in 2009 following financial crisis.
"The market is waiting for financial stimulus to pick up as monetary policy has hit its limits," said Raman Srivastava, deputy chief investment officer at Standish.
Odds are there will be no Democratic sweep of the White House and both houses of Congress, but it is possible.
Polling website Fivethirtyeight.com and The New York Times Upshot give the Democrats a 53% chance of winning the Senate to 47% of Republicans maintaining control. Democratic control of the House is even less likely.
The Iowa Electronic Markets, a small-scale futures market that allows investors to bet on political contests, gives 38% odds of a Democratic Senate and Republican House as of Friday, Oct. 14. It also gives slightly greater odds of a Democratic sweep of both houses of Congress than a Republican sweep of Congress: 24% to 23%.
Financial markets appear to be pricing in a Clinton victory, according to the BNY Mellon investment professionals at Thursday's lunch.
