WisdomTree: victory of Democrats could bring volatility

Our view is that this will be a very close election. A Democratic-controlled House of Representatives is far from a sure thing, even if it is the consensus view. It’s important to recognize how truly divisive US politics is at this stage.

It also matters that President Trump tweeted that progress was being made with China. Whether or not that is true is not important—it’s important the message it sends to the market, in that, if markets are rising, this could benefit Republican candidates.

If the expected occurs—Democrats take House, and Republicans keep Senate—then this is most likely what is priced into the markets today, and if anything things could rise a bit as the outcome being priced in would then be certain.

However, if Republicans continue to control everything (House & Senate) then the market could rise significantly and if Democrats gain control of everything (House & Senate) then the market could face a LOT of near-term volatility, as this is not an expected outcome and it puts certain things like the Trump agenda at a greater risk.