If – When? – Hillary Wins

We think Trump won the debate. That stabilizes his candidacy, but leaves less than a month to actually win, and it’s getting increasingly unlikely. The broken correlation between stock prices and the probability of a Clinton victory points to markets beginning to fear her, possibly driven by the spectacle of last week’s populist lynching of Trump, which was egged on by the establishment to which he is an existential threat. The modal outcome now is probably President Clinton, GOP House, Dem Senate, and liberal Supreme Court. But with the electorate’s appetite for change thwarted, Clinton will be damaged goods, and the GOP House will be further radicalized. Continued “secular stagnation” with high risk premia, adequate but unspectacular equity returns and low bond yields is the base case, but political toxicity lowers that baseline and leads to potential shocks. If elected, Clinton would be a one-term president, likely undone by an attack on her left, clearing the way for a GOP president in 2020.