Which presidential candidate will win the election? Most polls show a tight race between Vice President Kamala Harris and former President Donald Trump, just three days before Election Day. With such a close contest, a victory could be determined by a small number of votes in one or more swing states.

I won’t try to predict whether Harris or Trump will win. However, I am more confident in predicting what will happen to the stock market if Harris wins.

Image Source: Official White House Photo by Lawrence Jackson.

A relief rally

I predict S&P 500 (^GSPC 0.41%) will increase if Harris is declared the winner in the presidential race. But I also think stocks will rise if Trump wins. Why? I expect a relief rally anyway.

If there’s one thing investors uniformly despise, it’s uncertainty. Lack of clarity about the future makes decisions about where to invest more difficult. Uncertainty can often serve as an anchor in the stock market. When uncertainty is removed, however, the anchor disappears, allowing stocks to gain.

Due to the tight presidential race and the markedly different policies of the two major presidential candidates, investors are currently facing a lot of uncertainty. I’m not sure if the uncertainty will disappear immediately after Tuesday’s election. We may not know who the winner is for days or even weeks. However, when we do know, the stock market is likely to respond positively to the removal of uncertainty.

I don’t expect a relief rally to last very long, though. Once the collective expiration of investors is over, other factors will weigh more heavily — in particular, which policies proposed by the winning candidate will be likely to be implemented.

Divide and conquer

Let’s say Harris beats Trump. How will stocks fare after the initial relief rally ends? I think it depends on which party controls Congress.

Some stocks should rise if Harris wins and her fellow Democrats gain majorities in the Senate and House of Representatives. For example, the vice president’s housing proposals would be more likely to be implemented with a passing election. I predict top builders Dr. Horton, Lennarand DVR would be very popular with investors.

Democrats have a steep hill to climb to hold on to the Senate. They are defending all but three of the 15 Senate seats up for grabs. Decision Office HQ predicts Republicans have a 71 percent chance of winning the Senate.

I predict that the current S&P 500 bull market will gain renewed momentum with Harris as president and the GOP controlling at least one chamber of Congress. Historically, stocks have performed best when there is a divided government with a Democratic president.

This environment could offer investors the best of both worlds. Harris beating Trump would mean the former president is steep CHARGES it will not be implemented and will cause inflation to mount an ugly comeback. Republicans who control the Senate and/or House would likely condemn Harris’ plans to raise corporate tax rates. The only legislation that would be passed would be bills that can secure bipartisan support.

Known unknowns

While I admit I could be dead wrong, I’m relatively confident in my prediction of a relief rally followed by a continued high market with a Harris win. That said, some “known unknowns” could cause my prediction to fall flat on its face.

A major geopolitical crisis could send the S&P 500 crashing. For example, an all-out war between Israel and Iran would almost certainly be bad for stocks. Another pandemic would likely sink the stock market. Unexpected interest rate hikes by the Federal Reserve could be problematic.

Things can happen that derail any prediction, no matter how much merit it might have. However, these “known unknowns” would likely cause headaches for investors if Trump also wins a second term.

The good news: Investors will soon be able to cross off a major known unknown — who the next president will be.