Wall Street No Longer Likes Congressional Gridlock

Rising budget deficits mean increased issuance by the U.S. Treasury, which may not prove to be to the bond market's liking.

"I'm reluctant to say the bond market will have a big selloff the day after the election, but as a long-term concern the fixed-income markets might be nervous the Republicans would advocate deeper tax cuts without showing much restraint on spending," said Schwab's Valliere. "It's a legitimate fear."

Weakness in the bond market would prove disheartening to investors who've put nearly $120 billion into fixed-income funds this year through September (vs. outflows of $18.7 billion for equity funds), according to the Investment Company Institute. And higher rates, should they emerge because of rising deficits (or any other reason), would result in higher borrowing costs, potentially choking off the recovery.

Bottom line, a Republican sweep doesn't guarantee anything for stock and bondholders, whose interests may or may not be aligned with Wall Street's.

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