An Election Silver Lining for the Markets?
Author: Greg Valliere
October 6, 2020
WITH JOE BIDEN AHEAD BY 8.5% in the RealClearPolitics aggregate of all polls, the financial markets obviously have to prepare for a Biden presidency and a Blue Wave. But there’s a significant silver lining: a major market concern — a messy disputed election — looks less likely if the polling margin stays this wide.
AS OUR COLLEAGUE Kevin McCreadie notes, the financial markets were jittery
after the 2000 voting; the Supreme Court didn’t declare George W. Bush the winner until Dec. 12 that year. A similar scenario this year now looks less likely, Kevin says.
THIS CAMPAIGN COULD TIGHTEN AGAIN, but if anything, Biden’s lead has widened. Surprisingly, he has maintained a steady margin in Ohio, and is ahead fairly comfortably in Arizona — two states that usually back Republican presidential candidates. Biden leads by a few points in virtually all of the battleground states — if you believe the polls, which are far from infallible.
ARE THE MARKETS PREPARED FOR A BIDEN PRESIDENCY? Several major brokerage houses are sanguine, asserting that Biden would aggressively stimulate the economy and ease trade tensions — but there’s no question that taxes would rise.
BIDEN SAYS people who earn less than $400,000 a year wouldn’t be affected by his sweeping new taxes, but that’s disingenuous because higher business taxes and Wall Street transaction taxes would get passed on to customers. And a new minimum corporate tax would cut into earnings by late 2021.
BIDEN ALMOST CERTAINLY WOULD RETAIN FED CHAIRMAN Jerome Powell, who is committed to keeping the fed funds rate close to zero for years to come. That’s a huge story for the markets, and the prospect of extraordinary monetary stimulus is the major reason for the recent stock market rally.
THE GREAT UNKNOWN, OF COURSE, is whether Donald Trump’s Covid-19 Hail Mary pass will succeed. It’s possible that voters will view him as a tough guy and inspirational, or it’s possible his Covid-19 behavior will be viewed as reckless.
EVEN IF TRUMP RESUMES CAMPAIGNING by late October, he still would need help from an outside factor — perhaps a Biden gaffe or a geopolitical crisis. The simple fact is that most voters have made up their minds, and many have already cast their ballots.
BARRING A SHOCKING NEW DEVELOPMENT (it’s 2020, so anything can happen), Biden still looks like the narrow favorite. But a relatively comfortable Biden victory is now plausible, which means chances of protracted litigation over mail-in ballots are dropping — and that’s a good story for the markets.
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