Markets continue to be on waiting mode. The three biggest prediction models for presidential elections show a tie between both candidates, which creates anxiety and maximum uncertainty, not so much about who will win, but to see if the transition will be smooth and peaceful, or not. This is due to the myopic perspective on elections: historically, there is no real edge for one party or another when it comes to impact on markets. Market behavior is more related to a functioning government and corporate earnings than the distribution of power. What is true, however, is that this time it may take longer to declare a winner, not only because the race is tight, but because, as you can see in the chart below, this is a very litigious election. And those lawsuits, and the ones that will likely come, will need to be resolved prior to Inauguration Day. Once we go over that hurdle, the newly elected government will need to deal with the expiration of Trump tax cuts, avert a government shutdown, extending the debt ceiling and issue new debt to cover the deficit. Those are the real issues for the new government that will impact markets.
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