The November Election Will Not Be Market Friendly

The U.S. must get fiscal!

"Adulterers in churches and pornography in the schools, you got gangsters in power and lawbreakers making rules. When you gonna wake up?"

--Bob Dylan, "When You Gonna Wake Up"

In light of the news over the last week, the odds of a Clinton presidential win have risen considerably according to the London betting parlors.

At Paddy Power, Clinton's odds have improved further to 1-6 odds as Trump's odds have eroded to 5-1. In other words, if this was a horse race the race track likely would take no win bets (and take it off the board) because it is a near-guarantee that Clinton will be the next president of the United States.

My baseline election expectations remain:

* A Clinton presidency

* The Democrats regain the Senate

* The Republicans retain the House of Representatives

As I wrote previously:

"A Clinton presidency will likely produce fiscal (legislative) gridlock (Democratic control of the Senate and Republican control of the House) and inertia at a time in which monetary policy has lost its effectiveness. There will simply be too much animosity between the parties to assure compromise following such a heated campaign that has been filled with personal and party attacks on the part of both Republicans and Democrats.

A Trump presidency will likely produce a broad swath of uncertainty as it related to ambiguities and the absence of details of policy. As well, passage of Trump initiatives could prove too debt-heavy and hard to legislate, with opposition outside and even within the Republican Party.

From my perch, both outcomes are market-unfriendly, have not been priced into the markets, will produce additional uncertainties and ultimately might lead to a contraction in valuations."

--Kass Diary, "Neither a Clinton nor Trump Victory Will Be Market-Friendly"

The U.S. must get fiscal!

"I've been patient, I've been good

Tried to keep my hands on the table

It's gettin' hard this holdin' back

If you know what I mean

I'm sure you'll understand my point of view

We know each other mentally

You gotta know that you're bringin' out

The animal in me

Let's get physical, physical

I wanna get physical

Let's get into physical"

--Olivia Newton John, "Physical"

We must get fiscal.

With monetary policy losing its effectiveness, after the election and in early 2017, everything will come down to how smoothly and successfully a Clinton administration is capable of negotiating toward fiscal policy compromises with a Republican House led by Paul Ryan.

Indeed, a successful baton pass from stimulative monetary policy to a substantive expansion in fiscal policy might hold the single most-important key to the stock market outlook next year.

Unfortunately, given the increasingly vocal and hostile right wing of the Republican Party, I am not very optimistic.

Ergo, the November election will not likely be market-friendly and could provide another important headwind to equities.