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, November 13th at 9 a.m. Eastern. We continue our

2020 election prep, this week focusing on impacts to the macroeconomic outlook.

And here we're telling investors that the impact is less about Republican versus Democrat,

but more about unified versus divided government.

Consider the current state of the U.S. economy.

Growth has been slowing, and while the Fed is doing its best to counteract this by cutting rates,

our economists don't see a rebound coming soon.

If this keeps up into the U.S. election, then it's reasonable to consider what outcome could improve upon the slow growth trend.

We don't see much help coming from divided governments.

That's one where the party controlling the White House does not also control Congress.

In those scenarios, regardless of which party controls the presidency, legislative gridlock

is expected to be the norm.

That's because polarization is high, and every meaningful piece of economic legislation over the past 10 years has passed with only votes from the party in power

making transformative legislation tough to do in a divided government. So a fiscal stimulus

like a tax cut or unfunded spending program, is probably only possible

after economic consequences, like a recession, has already happened.

But what about unified governments?

Here we think a fiscal boost to the economy is possible,

not because we think either party is particularly interested in preempting a recession,

but rather because they have the motive and the opportunity to push first for popular policies and ignore unpopular ones.

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