Headed for a showdown

The election outcome is the key uncertainty for markets. While the consensus points to divided government—Democrats taking the House, Republicans holding the Senate—the specific margin matters. Historically, a split Congress has favored stocks, but a full Democratic sweep has seen weaker returns.

Despite strong economic fundamentals like surging GDP and a robust labor market, consumer and business confidence has plunged. This disconnect, coupled with President Trump's low approval ratings and voter discontent over inflation and the Iran conflict, suggests a potential Q4 market downturn. Investors should watch for how these factors play out, especially given the increasing unaffordability of housing and rising energy costs.