Any kind of surprise outcome in the late stages of the United States presidential race could prolong an already drawn-out capital spending recession in the United States.
On the weekend, the US Federal Bureau of Investigation's shock decision to scrutinise previously undetected emails linked to its lapsed investigation of Hillary Clinton threw the campaign into upheaval and cast doubt on a comfortable Democratic win.
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Clinton urges FBI to release email information
Democratic presidential candidate Hillary Clinton calls on the FBI to immediately release all information it has on newly discovered emails.
That was reflected in some key assets and markets, including the US dollar, the S&P; 500 and the CBOE volatility index. Some strategists argued its effect was felt even in rates markets, where a shock Donald Trump victory would likely preclude the Federal Reserve from raising interest rates this year. Treasury yields dropped slightly and futures priced in a lower probability of a rate hike in 2016.
While most market speculation around the election outcome has centred on the way shares and US Treasuries would trade in the immediate aftermath of any non-consensus result, in a nod to the lessons imparted by the Brexit vote, investors have not given as much air time to the longer view.
"If you don't really understand who's going to win the election, and what their policies are going to be thereafter, there's a good argument to saying that uncertainty could lead to further weakness in investment, and further consequences for US households," said Elliot Clarke, senior economist at Westpac.
"We had the GDP numbers out on Friday and business investment was pretty weak, that's been a continuing theme."
Surge in exports
The US growth data shows that the economy expanded 2.9 per cent in the third quarter, higher than economists anticipated. But 0.9 percentage points of that came from a surge in exports. The household and business investment component was more disappointing, according to Westpac, with equipment spending falling for six of the past eight quarters across all sectors.
Weak equipment investment is also at odds with the sustained jobs growth the US economy is seeing. Capex by S&P; 500 companies is at the lowest level since the financial crisis, according to Deltec, which puts capex growth at close to "recessionary" levels.
Chad Padowitz, chief investment officer at Wingate Asset Management, sees the impact of a remarkable election campaign reflected in the performance of the health care sector. Year-to-date, health care distributors, health care services and biotech are among the worst performing S&P; 500 sub-indices down 28.3 per cent, 17.2 per cent and 16.4 per cent.
"The health-care sector, that's the most politically charged sector," he said. "There could be an element of you don't want to put your head out right at this moment, and post the election it's a bit more smoother sailing. We're actually expecting it to do quite well over the next couple of months." Mr Padowitz said, noting that he favours drugmaker Sanofi.
That's also why he thinks a Democratic sweep of the White House, House of Representatives and Senate would be perceived to be bad for health investors. "The health-care sector globally is a bit concerned about increased regulatory scrutiny, something of that vein will probably be more aligned to a Democratic sweep."
Indeed, a Clinton presidency and divided Congress would be the best political outcome for shares, UBS has proposed. A president Clinton, being kept in check by a split Republican-Democratic legislature, would be modestly positive for US equities and reduce the uncertainty of a potential Trump administration, the wealth manager said.
Bursts of volatility
Were the Democrats to come away from the election with a larger majority, UBS sees that paving the way for a higher minimum wage and more regulation.
In the meantime, investors can count on bursts of volatility.
"I'm looking out for what's going on with confidence and the more you get this uncertainty beforehand the more you're going to see a lack of liquidity and quick bouts of volatility coming through," Mr Clarke said. "When you had pre-Brexit trading and no-one really wanted to take a position, you can get much more substantial moves."
Since 1927, total shareholder returns from US equities have been strongest when there has been a Democrat president and Republican control of the House, Senate or both, delivering at an average 16.7 per cent a year. Returns averaged 8.9 per cent a year when the Republicans controlled the White House and Congress, according to AMP Capital.