Ultimately, the tone of the economic outlook under a Clinton presidency depends as much on the outcome of the race in the House of Representatives and Senate as it does the actual presidential election, if not more so, Papadakis argued.
Based on current polls and available data, he predicts that the most likely outcome is a Clinton presidency with a divided House of Representatives and Senate.
However, this does not necessarily mean the painful stalemate between the executive and legislative branches under Barack Obama’s presidency will persist. In fact, Papadakis thinks there are areas where compromise between the two branches could improve an already decent economic outlook.
“Room for compromise could be found on the corporate tax reform issue, given bipartisan support for the idea,” he said. “A plan similar to that proposed by President Obama, allowing US corporates to repatriate foreign earnings, currently kept overseas in order to avoid a 35% tax rate, taxed at a one-off concessionary rate. The plan envisioned using the proceeds from this repatriation holiday to fund infrastructure investment. Secretary Clinton is likely to aim for a similar compromise, given her stated goal of boosting infrastructure spending.”
And if the Democratic party was able to gain control of one or both of the chambers of Congress, “a more predictable policy environment would emerge.”
“A united government eliminates the risk of episodes like a debt-ceiling fight and would potentially allow the Democratic administration to put in place a fiscal response if an economic slowdown were to occur – a critical risk-management tool at a time of interest rates just above zero,” Papadakis said.
The economic picture under Trump, on the other hand, is decidedly less clear.
Throughout his bid for the presidency, Donald Trump has promoted himself as the ultimate anti-establishment candidate, issuing a stream of radical statements on economic and foreign policy that has made him, among other things, difficult to predict. Although this has had little impact on markets thus far, Papadakis said that could change if there is a greater probability he might win the election.
“While market participants have been able to discount such concerns as long as a Trump win remains a remote scenario, this may well change if this assumption gets challenged. A natural market reaction to such an increase in policy uncertainty would be a sharp rise in risk premia,” he argued.
