Wall Street doesn't just see a Clinton win, it sees a landslide - CNBC

[TomSea]

Wall Street doesn't just see a Clinton win, it sees a landslide

Wall Street is pricing in a landslide victory for Hillary Clinton, but if she starts to lag, there could be a big unwinding of stock and bond market positions, according to Bank of America Merrill Lynch's David Woo.

Woo said the market is also pricing in a split Congress, with Republicans controlling the House and Democrats the Senate. That would maintain the deadlock in Washington.

"You have a Democrat president, and a Republican controlled Congress which means you have gridlock in Washington. The market is pricing in this gridlock, meaning it's going to be that much of the burden of supporting the economy falls on the Fed," said Woo, head of global interest rates and foreign exchange strategy. That makes it harder to get agreement on changes in tax policy or for fiscal spending that could help the economy.

Woo said gridlock makes it hard for the Federal Reserve to raise interest rates very much, and that means the U.S. markets would continue to feel the benefits of the quantitative easing being done by other central banks. Central bankers in Europe and Japan have driven interest rates lower or negative, and investors have flocked to the U.S. credit and stock markets. Woo said that environment has led to the dominance of the risk parity trade, where investors see conditions that favor both stocks and bonds.

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