“Investors have yet to break a sweat over November’s U.S. elections. That’s likely to change soon,” Steven C. Johnson writes for Reuters.

“Investment strategists say the contests are among the most important in recent memory: a new government will need to tackle the deficit and start containing the national debt or the United States risks further credit rating downgrades that could erode the dominance of the dollar in global financial markets,” Johnson writes. “That will mean tough decisions on spending cuts and tax reform at a time when a few missteps could easily derail a fragile recovery in an economy that has only just escaped from the worst of the post-financial crisis torpor.”

Johnson asks, “So, what should investors do? What would a second Obama administration mean for tax policy? Would a Republican or even Democratic sweep be best, or can a divided White House and Congress learn how to work together again?”

Here’s a look at how to navigate four possible scenarios:

• Obama Re-Elected With Divided Or Republican Congress: If the elections yield the same political gridlock that brought the country within hours of default in 2011, financial markets could slide…

• Republican White House, Divided Congress: This outcome also worries those who fear gridlock. Even if they lose the White House, Democrats may block initiatives of a new Republican President if they hold the Senate…

• Republicans Win White House And Control Congress: Initially, markets might see a Republican sweep as by far the most pro-business result. U.S. stocks and the dollar could rally…

• Obama Re-Elected, Democrats Control Congress: This is probably the least likely scenario given the hurdles for the Democrats to regain control of the House. But just as a Republican sweep could rely too heavily on spending cuts, analysts fear this may lead to higher taxes and more regulation…

Johnson explores all four scenarios in much greater depth – along with his investment winners and losers for each – in the full article here.

[Thanks to MacDailyNews readers too numerous to mention individually for the heads up.]