What to watch during the U.S. election

Some forecasters believe it could be Wednesday morning until the Presidential results are known.

If President Obama is re-elected, we don’t expect a material move in the markets, as his victory has likely been priced in.

However, if Mitt Romney wins, we could see a short-term rally, as his campaign platform should benefit sectors such as Health Care, Financials and Energy.

But this rally would be short-lived. Longer term, we don’t see much difference in market reaction to either candidate.

Read: Final jobs report will impact U.S. election

Political change can often lead to uncertainty in currency markets. An Obama win should not influence the U.S. dollar to a large extent; however, a Romney win could lead to some short-term weakness in the Greenback.

As such, you may see momentum behind oil and gold prices if the Republicans take the White House. Even with that support, the global economy still suggests that supply/demand fundamentals remain fragile, so we suspect that even if commodity prices pop due to a weaker U.S. dollar, fundamental factors could still drive some short term weakness.

Read: Will the U.S. election impact the economy?

Economic progress will happen if one party controls the House of Representatives, the Senate and the Presidency — or there is a bi-partisan effort to get the job done.

Since this is unlikely to happen, keep a close eye on who wins the Presidency and how large the majority is for either party in the House and Senate. Stronger majorities should yield greater legislative influence.

Read: Obama, Romney target U.S. taxes

If we believe the current polls, Barack Obama will win the Presidency, the Democrats will maintain their small majority in the Senate and the Republicans will have a smaller majority in the House. That means more of the same in terms of bargaining power amongst the 536 politicians that control Washington.

With that said, there are a number of serious headwinds that Washington is about to face as we approach December 31, when a number of tax breaks will expire and automatic spending cuts will occur. These reversals and cutbacks will result in a material decline in disposable income for many Americans, and economic growth could suffer enough to put the U.S. back into recession.

It’s obvious such an event can’t happen and politicians must find a way to delay the fiscal cliff. Therefore, bi-partisan compromise will be required, but could be tough to achieve immediately after a tight and nasty campaign.

Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends. @Gareth_RGMP