The presidential election can be blamed for some of the recent market volatility to some degree, as a recent study has shown, but perhaps a greater explanation is how much a general feeling of uncertainty pervades right now. elsewhere Mr. Market is uncertain not only about the outcome of the presidential election and about which candidates will get their parties’ nominations, but also where the Fed will go next, what the next set of economic data points will say, and what will happen in international markets like the eurozone, Japan, China and others.
Interestingly though, it seems the general public is “unusually certain” about the outcome of this year’s election, according to Goldman Sachs, although that could very well change.
Will Donald Trump win the Republican nomination?
Perhaps the biggest question mark about the presidential election right now I whether Donald Trump will win the Republican nomination. Goldman Sachs analyst Alec Phillips notes that the bar for Trump to win the nomination is set high at 65% of the remaining delegates but that he’s the only one within striking distance.
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There’s still a fairly good chance that there will be a contested nomination, but of course the uncertainty in whether Trump will win the nomination is only one part of what’s turning out to be a very uncertain presidential election. Phillips said a contested nomination is less likely if Trump wins most pledged delegates by June 7. And even if there is a contested nomination, he thinks Trump will still win.
Who will win the presidential election?
Looking further out, Phillips believes that the Democrats (probably Hillary Clinton) have a greater advantage than Donald Trump in the Electoral College. In general, he said it seems most people know who will win the presidential election—and that they are unusually certain about it.
However, the outcome of the popular vote looks more uncertain, and he believes that as the election year wears on, it may look more contested than it does now
He notes that usually the general polls tighten in the middle of the year in elections when neither candidate is incumbent, although he adds that the current election is turning out to be anything but normal.
He predicts that the Republicans will continue to control the House because there is a limited number of contested seats. However, he said majority control of the Senate might change hands, especially if Hillary Clinton takes the White House. He thinks the government will continue to be divided, although he said there is a chance that the government will become all Republican-controlled after the presidential election.
The economy will impact the outcome but only slightly
Phillips believes the economy will have “a fairly modest effect on the election unless there is a dramatic shift.” He points to “numerous” studies that show a relationship between the economy and the results of a presidential election, particularly in the second quarter.
What are the likely results from the presidential election?
We’re already hearing plenty about the various issues that are dominating election debates, but after the next president settles into the White House, we can expect some changes to be made. According to Phillips, tax reform is one big issue that might see changes following the next president’s inauguration, no matter what the outcome is. He notes that Democrats and Republicans are beginning to look very similar on the topic of corporate tax reform, but he thinks that even if a Republic government is elected, personal tax reform will be difficult.
Another area of major uncertainty is the impact the presidential election will have on U.S. monetary policy over the next couple of years. No matter which side wins the White House, Phillips thinks the Fed will expand rather than tighten fiscal policy, adding that tax reform might bring a boost in the near term. He said a Republican increase in defense spending and a Democratic increase in infrastructure spending could also give a boost.
In the interim, he doesn’t expect the elections to have much of an impact, but he notes that the next president will appoint a new Fed chair next year. He suggests that Clinton would nominate Janet Yellen for another term, although it’s more unclear who Trump might nominate.