(November 10 – 16:30 ET) – Uncertain U.S. election results weighing on the market may mean a hard landing for the economy, says BMO Nesbitt Burns chief economist, Sherry Cooper.

The process could drag on, possibly in the courts. Furthermore, state electors are only bound to follow their state’s popular votes in half the states. In short, the entire election remains in dispute, and may for quite a while, says Cooper.

“These dramatic and unprecedented developments can’t help but impact financial markets and the economy,” she says, suggesting consumer confidence will likely be hurt. “The longer the uncertainty drags on, the worse it is for the Christmas season and for the global economy.”

Regardless of who wins the election, an evenly divided Congress will mean that almost all election promises will go out the window, she predicts. “Forget huge tax cuts and Social Security reform on the Bush front. Forget major drug plans and big increases in government spending supported by Gore.”

On the bright side, this gridlock is good news for the Fed and the bond market, she says. “Fiscal policy over the foreseeable future will remain increasingly restrictive, however, as tax revenues as a percent of the economy continue to rise. Debt reduction will remain substantial and even accelerate. Ultimately, the Fed will likely ease policy to offset this in a slowing economy.”

The Nasdaq is down 40% from its highs, and well off its 200-day moving average. In its wake, credit is drying up, she says. “Other markets are painting the same picture.”

“Uncertainty on the U.S. election front, particularly prolonged uncertainty does not help! Expect an economic slowdown and the resulting financial market fallout. If the election uncertainty drags on, the chances of a hard landing rise.”
-IE Staff