The U.S. presidential election will take centre stage in 2020 – and the uncertainty surrounding the campaign will be one of the year’s biggest risks for financial markets.

However, strategists differ greatly on what the election might mean for investors.

“History suggests you do tend to see strong gains in equity markets [in election years],” David Doyle, North American economist and Canadian market strategist at Macquarie Group, said in an interview broadcast on BNN Bloomberg earlier this month.

Doyle said his firm is forecasting strong gains in the U.S. and Canadian markets in 2020. He predicts the TSX composite will end the year higher, but not as much as the U.S. market due to what he called “structural headwinds” in the Canadian economy. The specific market impact of the election, scheduled for Nov. 3, will be greatly affected by who wins the presidential battle, Doyle said, noting his research indicates the Republican candidate appears to have the upper hand.  

“The perspective I’m getting from market participants is there is an overwhelming belief that Donald Trump will get re-elected,” he said. “History shows presidents tend to not get re-elected when the economy is soft, which is not the case this time.”

Trump was impeached by the U.S. House of Representatives on obstruction and abuse of power charges on Dec. 18 in an historic step — albeit one that had little impact on markets. The Republican-controlled Senate will have the ultimate say in the new year on whether Trump will be convicted of his charges and be removed from office.

Assuming Trump remains president, Doyle is also predicting some variance within 2020, based on historical patterns.

“When we did some research on how equity markets in the U.S. perform over the course of a year when a president is seeking election, you tend to see strong gains in the first quarter, and then some softness in the middle of the year, and then a strong resurgence toward the end of the year,” he said. “So that could play out again this year.”

While Macquarie sees a market boost from the U.S. presidential election, BlackRock Inc. is taking the opposite view. In its 2020 outlook, the global investment manager has downgraded its rating on U.S. equites to neutral.

Kurt Reiman, chief investment strategist for BlackRock Canada, says rising uncertainty around the 2020 election, and a wide range of potential policy outcomes may weigh on sentiment and prevent a repeat of outperformance. He says investors may face the risk of more disruptions to the global trade system if Trump is re-elected, or at the prospect of a Democratic administration raising corporate taxes and tightening regulations.

Reiman also sees some more specific potential impacts, depending on the outcome of the election. He says fiscal stimulus, whether in the form of green infrastructure or tax cuts, is possible if either party gains control of both the executive and legislative branches. As well, big technology companies may face a regulatory backlash whatever the election outcome, as issues around market dominance, data privacy, election meddling and cybersecurity rise to the fore.

“This challenges large caps that have led markets higher,” he told BNN Bloomberg in an email.

Manulife Investments Chief Investment Strategist Philip Petursson, meanwhile, is taking the middle view when it comes to the election’s likely impact on the markets.

“We do not consider the impact on market outcomes much differently than in non-election years,” he told BNN Bloomberg in an email.

Despite that overall outlook, Petursson says there are some factors to consider, including which party achieves power in each part of the government. He notes that should 2020 see one party sweep the White House, Congress, and the Senate, then it is more likely that campaign trail policy will be fulfilled – as it was with the Republican tax cuts following the 2016 election. However, Petursson notes Manulife believes a political sweep in 2020 is unlikely, and therefore a form of legislative gridlock is expected.

“Gridlock tends to be good for markets, as it maintains the status quo,” he said.

Petursson added that if the Democrats take full control, the likely outcome would be a repeal of Trump’s tax cuts and potential weakness in the U.S. economy from both business and the consumer side.

“At the very least, it might prompt hesitation by business on new investment until the tax regime is better known,” he said.

As far as impact on the Canadian market, Petursson says there would not likely be any overall effect as a result of the election. He notes that unlike 2016, when Trump campaigned on revising the North American Free Trade Agreement,  Manulife does not believe Canada is in the sights of the U.S. right now.