Here is Oppenheimer's take on 4 possible US election outcomes and how the stock market might react

• Oppenheimer Asset Management examines four possible outcomes to the November 3 election and their likely market impact.
• A Biden win and the Democrats taking over the House and the Senate would be a "worst case" scenario for the markets and stocks might fall by up to 10%, John Stoltzfus, chief strategist at Oppenheimer, says.
• Once the election is over, the market will once more focus on the economy and earnings, Oppenheimer says.

The upcoming US presidential election promises to be anything but ordinary. Market-based gauges of volatility show investors are preparing for a high degree of uncertainty over the outcome of the vote, despite what the most recent popular polls might suggest.

The S&P 500, which hit record highs in early September, is heading for its largest one-month fall since March, having lost nearly 6% so far and nervousness over the November 3 election has been no small part of that.

John Stoltzfus, chief strategist at Oppenheimer Asset Management, which has around $30 billion in assets under management, has taken a look at four possible outcomes and what each means for the markets:

Scenario #1: Biden wins the Presidency and the Democrats gain control of both the House and the Senate - Negative for stocks.

Oppenheimer chief investment strategist John Stoltzfus says this outcome would constitute a "worst case scenario", in that it would curtail "the checks and balances that demand negotiation and compromise among opposing parties across the fabric of the political landscape that stretches across the House of Representatives, the Senate, and the White House."

"In such a scenario we might expect the equity market to respond to such an across the board sweep by the Democrats in the upcoming election with a 6% to a 10% decline in a short period of time," Stoltzfus said in a note on Monday. The concern would be over too much legislative power being concentrated in Democrat hands.

This could pose a number of risks, he says. These include higher corporation and individual taxes that could sour both sentiment and spending and reduce US corporate competitiveness, particularly if this limits opportunity for investment and innovation. The result could mean even more pressure on government finances.

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Scenario #2: Trump wins re-election, Republicans hold the Senate and Democrats retain control of the House. - Positive for stocks.

Here, the political structure of the House and Senate would remain broadly unchanged and likely produce less uncertainty for the market to digest than would Scenario #1, Stoltzfus says.

"In such a scenario the market might rally 4% to 6% near term considering that the current administration has had a broadly business-friendly stance over the past four years, led efforts that resulted in the first tax reform in 38 years, and oversaw a drop in the unemployment rate to a 59-year low in the months before the disruption of the global and US economy caused by the pandemic," he said.

Scenario #3 Trump wins re-election, Republicans sweep the House and the Senate - Mildly negative for stocks.

This, Stoltzfus says, is the least likely scenario. Like Scenario #1, the market might respond negatively, or at least "not as positively" as it might to Scenario #2.

"In our experience the equity markets feel most comfortable when the House and Senate are not controlled by just one party. In our view we find the market feels comfortable with: checks and balances in government; hard won negotiations; and even political gridlock—rather than handing any one party too much control," Stoltzfus said.

Scenario #4 Trump wins; Democrats retain control of the House and take the Senate - Mostly neutral for stocks.

Under this scenario, Oppenheimer sees the market trading flat in the aftermath, as investors wait to see how close to the political center the Democrats in the Senate might be.

"The biggest political worry so far exhibited by the market would appear to us to be that the Democratic Party might pivot left toward the progressives after the election," Stoltzfus said.

"Ultimately the market's vote comes after the election as it judges the effects of political policy on the economy."

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