The market and Congress are locked in a high-stakes game of chicken — and who blinks first will ultimately determine where stocks go next | Markets Insider

on Tuesday that includes a $300 federal supplement to state unemployment benefits and another round of small business aid.

The scenario heading into the fall is a"chicken or the egg situation," Seema Shah, chief strategist at Principal Global Investors, said in an interview.A strategist at the world's largest wealth manager lays out 4 election-related risks that could damage investors' portfolios — and shares how to safeguard against each one now, regardless of who wins

Waiting any longer jeopardizes a new deal in its entirety. Shah noted that governments are"increasingly reluctant" to increase their fiscal spending as their deficits surge, making debates for passing new stimulus"tougher and tougher." Should policymakers take too long and fail to pass a deal, she sees the resulting investor reconciliation likely driving a steep sell-off.

The market wants to see"some genuine thinking behind where the money is being allocated," she said. The CARES Act already pushed the US deficit to new records, and inefficient spending would only inflame fears of a future budget crisis.GOLDMAN SACHS: Buy these 19 stocks right now for big future gains once a COVID-19 vaccine is available

That downside could fuel a market reckoning akin to that seen at the start of the coronavirus pandemic, said Shah, citing the dislocation between stocks and the economy. In her mind, that makes stocks especially vulnerable to a sudden shift in sentiment.

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