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Tony Ross, chief investment officer at Wilmington Trust Investment Advisors (MTB), spoke with Quartz on the latest edition of their “Smart Investing” video series.
Watch the interview above and read the transcript below: The transcript of this conversation has been lightly edited for length and clarity.
Andy Mills (AM): We’re less than two months away from the presidential election. What outcomes do you think investors should expect?
Tony Ross (TR): Well, I think they should expect the entire Congress to be divided. And I think one of the things that’s very important is the fact that we have this tax reform bill that was passed under President Trump and is now up for renewal in some sense, a bill that expires at the end of next year. So, I think with a divided Congress, you’re going to have a negotiating environment where a lot of the provisions are going to be extended.
But at the same time, there may be room for a little bit more fiscal discipline on the part of the federal government, which is very important as an investor in the medium to long term, because we’re currently running deficits of 7-8% of GDP per year, which is the largest we’ve ever seen, and that’s just not sustainable.
So if you’re a long-term investor, you really need to try to get to a point where you can do a good job of reducing the deficit and increasing fiscal responsibility while still preserving some of the tax cuts on the one hand.
AM: I haven’t looked at the numbers lately. Do you know if there’s a chance of a divided Congress?
TR: There’s a good chance the Republicans will take the Senate. So even if they were to win the Montana seat, Senator Tester has been trailing in the polls for a couple of terms and is in trouble. So if they win that seat and Senator Cruz holds onto his Texas seat, which is a little bit closer to the margin of error, I think the Republicans will take the Senate and the House will probably go to whoever wins the general election. That’s the way it always goes.
Therefore, if former President Trump wins, the Republican Party will likely win by a large margin and there will likely be no divided government. However, in the current circumstances, it is very difficult to predict.
Obviously, it looks like Vice President Harris has the edge. Given what happened recently in Nebraska, where she’s going to get the one electoral vote from Omaha, it feels like she has a lead in Wisconsin. She has a pretty big lead in Wisconsin.
She has a slight lead in Michigan and Pennsylvania is close. She could win Pennsylvania. That could be the deciding factor. So the most likely outcome is that the Republicans take the Senate and Harris wins. But we’ll see.
AM: Let’s say the Republicans win a landslide victory. How do you think that will impact the markets? How should investors prepare for such an eventuality?
TR: Well, I think a Trump outcome is probably the most uncertain outcome, no matter which way Congress goes, and the reason is that when you think about the election and how it impacts markets, there are three layers of uncertainty: there’s the uncertainty of the election – the uncertainty of who’s going to win, the uncertainty of what the composition of Congress is going to be.
But there is what I call “candidate uncertainty” and “policy uncertainty.” Candidate uncertainty consists of the idea that a candidate may act very differently than they say, perhaps because they’ve changed course, or because they can’t legally actually do what they’re going to do and they don’t have the votes, etc.
And with former President Trump, it was really unclear how much the next Trump administration would actually raise tariffs, how much they would cut taxes, and so there was policy uncertainty, meaning that even if they did do those things quite significantly, what would that actually impact the economy and the markets?
I think a lot of this patchwork of policies that he’s coming up with will be pretty negative for the economy in the long run because they will lead to huge increases in the budget deficit. But in the short run they may be good for the markets. They may be very productive in terms of economic activity in the short run and therefore help the markets, even if they have very negative long run effects.
So if we wake up the day after the election and it looks like Trump has won, regardless of the makeup of Congress, I think a lot of investors are going to feel very uncertain about how the market opens and trades over the next few days. So it’s going to be very interesting to follow that.
Photo: Win McNamee (Getty Images)
AM: Well, Tony, thank you very much.
