With the presidential election still close after Sunday night’s second presidential debate, investors should prepare for different reactions from the markets depending upon which candidate prevails, said Greg Valliere, chief investment officer for Horizon Investments.

(Valliere will be sharing his political wisdom on Oct. 27 during the Schwab Impact conference in San Diego.)

While the second debate was full of personal barbs, there’s no doubt “fresh revelations” will emerge before the final debate on Oct. 19, Valliere said. “We expect more bombshells, ranging from Trump’s taxes to his treatment of women, and surely there will be more hacked emails from WikiLeaks,” he noted in his Monday morning commentary. “Plenty of fodder for a knife fight in the final debate.”

Indeed, Valliere said during a Friday webcast hosted by Horizon that the markets will look for certain behaviors from each candidate, adding that rumors say The New York Times will dribble out more information about Trump’s taxes. 

If Trump wins, “I’m looking to see if he tones it down with a trade war with China; does he indicate that he’s willing to negotiate; not slap big tariffs on?” Valliere said during the webcast. “And I’m really interested to see if he would offer an olive branch to Janet Yellen. His criticism of her has been quite personal and quite strident. So the markets would look for those two things if he wins.”

If Clinton were to win, “I think the markets would look to her and say, ‘Is she going to immediately sit down with [House Leader] Paul Ryan and [Senate Leader] Mitch McConnell—with the leading Republicans? Will she try to offer an olive branch to them?”

Investors are “nervous” that Clinton would “carry out her promise to raise taxes, to increase the estate tax; to change the holding period on capital gains,” he continued, but “none of this would ever make it into law. It would die in the House.”

The “easiest call by far” for the fall is that the House stays Republican, while the Senate is “a close call” and could flip back to the Democrats.

“There’s no chance the House would support a big tax increase, and the Ways and Means Committee wouldn’t even raise a bill out of committee that would raise taxes,” Valliere said. “I think this is a reason the markets can live with [Clinton]. They don’t like her on regulatory policy or low-growth economic policies, but I think the markets realize that her tax hike agenda would die in the House.”

Looking to 2017, “really big stories” will be in infrastructure and tax reform; not tax increases, Valliere said. “Trump, Ryan, Clinton” and the likely next Senate Democratic Leader Chuck Schumer, D-N.Y., “all agree that we have to spend more money on infrastructure.”

As for tax reform, up for discussion and possible changes regardless of who wins the White House are ideas that the business tax “could be lowered a bit, and, in particular, international tax reform, which would have repatriation—that’s a huge story for drug stocks; tech stocks,” Valliere added.

There’s also “a big fight brewing” at the beginning of the year on the debt ceiling, he continued. “We’ve all forgotten that that issue comes up every year and a half and the debt ceiling expires early next year,” Valliere said. “That’ll be a true test of whether Paul Ryan can have his troops get along with him, or whether we’re going see the House stay dysfunctional, as it has been for the last few years.”

As to the polls, since Sunday night’s debate, Clinton “has opened up a significant nationwide lead—nearly five points, which is a lot in mid-October,” Valliere said. “Most importantly, she appears to have a solid advantage in Pennsylvania, which is her firewall. Trump absolutely has to win Florida, Ohio and North Carolina, but all look like toss-ups.”

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