after the most tumultuous weekend of the presidential race, investors have started to take seriously one of the least expected outcomes of 2016<u+2014>that democrats could take control of all of congress. even before the surfacing of a video of donald trump talking about women in crude language, the republican presidential candidate faced an uphill battle to take the white house. get financial insights and commentary on global investing from the wall street journal<u+2019>s heard on the street team. subscribe to the podcast. on monday, wall street was still buzzing about the video and sunday<u+2019>s debate. attention turned to whether a big loss by mr. trump could wipe out the republican majority in the house of representatives. that outcome<u+2014>a clinton presidency with a democratic congress<u+2014>is still seen as unlikely, but is potentially devastating for industries such as finance, pharmaceuticals and energy, and bad news for high-income taxpayers. in a survey conducted by the wall street journal and nbc news after the video<u+2019>s release but before sunday<u+2019>s debate, mr. trump trailed hillary clinton by 11 percentage points , compared with 6 points in september. <u+201c>there<u+2019>s a real chance that the house could go into democratic hands,<u+201d> says cornerstone macro political strategist andy laperriere. <u+201c>as an investor, that<u+2019>s what you have to contend with.<u+201d> house speaker paul ryan <u+2019>s plea monday to republican house members to do whatever they deemed best to win in their own districts, added to the focus on what has been seen as an unassailable republican majority. markets don<u+2019>t like uncertainty, as the saying goes, and there was little doubt that a trump presidency created lots of uncertainty. examining the relationship between polling and financial market data since june, forecasting firm macroeconomic advisers has found that investor perception of stock-market risk rose with mr. trump<u+2019>s estimated chances. a week ago, it reckoned that a victory by mr. trump would send the s&p 500 down 7% and a victory by mrs. clinton would send it up 4%. but part of mrs. clinton<u+2019>s appeal to investors has been an assumption that if she wins, republicans would at least hang on to the house, extending the gridlock of the past few years and protecting industries perceived as vulnerable in a clinton presidency.<u+00a0>mr. ryan said monday that he is working to ensure that if mrs. clinton is elected, she won<u+2019>t get a <u+201c>blank check<u+201d> with a democratic-controlled congress . to be sure, the odds of the democrats, who have long been favored to take control of the senate, also winning the house are still long. but they may now be better than mr. trump<u+2019>s chances of winning the white house. predictwise, a microsoft research project that compiles poll and betting-market data, puts the odds of the democrats winning the house at 25%, up from 14% just before the video release. mr. trump<u+2019>s chances of victory have gone to 12% from 20% over the same period. <u+201c>the most frequently asked question from clients over the weekend was whether republicans will lose the house,<u+201d> said dan clifton, an analyst at strategas, a wall street research firm. others said a trump loss would have far-reaching implications in washington, in particular the potential for a democratic congress. <u+201c>we disagree with many in washington who describe trump<u+2019>s presidential campaign as the electoral equivalent of a dumpster fire because a dumpster fire<u+2014>by definition<u+2014>is contained,<u+201d> said chris krueger, an analyst at cowen & co. banks in particular could be at risk. mrs. clinton<u+2019>s platform includes imposing risk fees on large financial institutions, and giving regulators more authority <u+201c>to reorganize, downsize, or break apart<u+201d> banks and other financial firms. her plans to reduce prescription drug costs could spell trouble for pharmaceutical and biotechnology companies. and energy companies could face tougher environmental regulations. such a victory could also mean higher taxes for professional investors. there was talk monday of tax strategies to move income into 2016 so it wouldn<u+2019>t be subject to expected higher tax rates. in the more likely event that the republicans manage to hang on to the house, there could still be turmoil in washington. mr. krueger points out that the house seats most at risk from a steep trump loss are held by republicans in suburban districts who are typically more moderate. if they get wiped out, the remaining republican house members would skew more conservative, making congress even more sharply divided. that would raise chances of disruptions like the 2011 debt-ceiling debacle . a lot could happen in the month between now and election day, but at this point in previous cycles polls, bettors and investors have had a good track record for picking presidential winners. congressional control is tougher, particularly in such a fluid situation. investors could be in for more october surprises, and perhaps a november one. write to justin lahart at justin.lahart@wsj.com
investors see new risk in trump swoon: a democratic congress - wsj
justin lahart