Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets.

It's Wednesday, December 4th at 9 a.m. Eastern.

As we enter the last few weeks of 2019, investor interest in the 2020 election keeps growing.

It's been about a month since we published our 2020 election framework for investors

and the questions keep rolling in.

While our framework focuses on what happens after potential 2020 election outcomes,

clients have asked a lot about how the campaigns themselves

might influence market behavior next year. Bottom line, it's all about uncertainty.

The less certain the outcome, the more the election might dampen risk sentiment. Recent history tells us that close

elections tend to see more range-bound equity markets. On average, excluding 2008, elections

that aren't closed see equities rally by about 16% in the year before voting. Elections that are close

are close only see about 7% gains.

Consider the 1996 presidential race,

in which Bill Clinton's polling margin over Bob Dole

was never less than high single digits.

The S&P 500 rallied by 22% to 12 months ahead of the election.

In contrast, the 2016 race was quite uncertain,

with the polling deficit typically in low single digits.

U.S. stocks saw only 3% gains 12 months going into that election.

We expect uncertainty about the election outcomes remain high in 2020.

Said differently, we don't expect that either party will pull with a substantial enough lead consistently to take policy uncertainty off the table for investors next year.

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