Different This Time?

Stocks can rise for good and valid reasons. But, they can also rise for no reason at all other than it gives them more room to fall without serious damage being done to important support levels. Such is the case with last night’s ramp job.

With a wide range of potential outcomes in the US elections tomorrow, this is a good time to look back at the last election and how that outcome might inform our outlook.

There are five basic scenarios:

(1)   Republican president, Republican Senate
(2)   Republican president, Democratic Senate
(3)   Democratic president, Republican Senate
(4)   Democratic president, Democratic Senate
(5)   2018 VP1 strikes Washington DC and, mercifully, we get a clean slate

Not too many years ago, Republicans stood for fiscal conservatism that would have considered trillion dollar deficits unthinkable. But in 2017, long before COVID-19 arrived on the scene, the CBO forecast the deficit exceeding $1 trillion by 2020.

That, of course, occurred with a Republican president and Senate. The debt in 2016 was $19.6 trillion – about 104% of GDP.  By 2019 it was $22.7 trillion. This year, it has already topped $27 trillion – about 136% of GDP.

So, it’s fair to ask whether which party controls the White House and Congress will make much of a difference.

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