How will the markets react after US election is called?

“Investors will have their hands full regardless of who wins the U.S. election Tuesday. Here’s what five top analysts think might happen on the markets in the aftermath,” David Pett writes for the Financial Post. Pett continues with views from five economists and strategists to get an idea of how the markets will react as the week goes on after the US election. “Julian Jessop, chief global economist, Capital Economics Mr. Jessop said the conventional wisdom of investors seems to side with Republican presidents, because investors presumably perceive such administrations to be more business-friendly. But while returns have been higher in the first year of a Republican presidency, U.S. equities have on average actually performed slightly better over the full term when a Democrat has occupied the White House. That said, Mr. Jessop thinks a Mitt Romney win over Barack Obama looks like the better outcome this time around, saying his plans would result in a more favourable tax treatment of equities, especially for high earners. “Romney’s plans also include a commitment to dramatically increase domestic energy production and partner closely with Canada and Mexico to achieve North American energy independence by 2020,” he wrote. Thomas Lee, portfolio strategist, J.P. Morgan Mr. Lee told clients that a close election bodes well for equity markets no matter who ends up winning, but returns may be more positive if Romney is victorious based on his research. Equity markets have gained an average 3.3% in the two months following any close election, he said, but gained 6% if the challenger wins. “That makes sense as a close race suggests a degree of dissatisfaction with the incumbent party and therefore incremental optimism if the challenger wins,” he wrote. “Assuming flat markets into election day, this would suggest a post-election rally of 45 points on an Obama win and 85 points on a Romney win.” Mr. Lee added a Romney win would benefit small-caps, domestic cyclicals, financials and health-care stocks. An Obama win, on the other hand, would be good for high-dividend payers and global cyclical stocks.” For the rest of Pett’s article click here. | Raymond Matt, CFP, CLU, TEP, CHS

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