What Would a Biden Presidency Mean for the Markets?
Author: Greg Valliere
June 5, 2020
WE’VE BEEN WRITING FOR WEEKS that Joe Biden is the front-runner, and now it’s dawning on the markets that he actually could win — in light of his terrible polls in recent days and the scathing rebukes from current and retired military officials, headed by James Mattis.
THIS MORNING’S JOBS REPORT won’t help Trump, who faces growing opposition from Republicans in Congress, who are starting to worry more about their own re-elections than his.
IF THE ELECTION WERE HELD TODAY, we think Biden would win roughly 300 electoral votes (270 are needed), the House would remain quite liberal, and the Senate would shift from 53-47 Republican to something close to a 50-50 tie, broken by the party that wins the White House.
WAVE OR NO WAVE? If there’s a tidal wave election that sweeps Trump out, several Republican seats could fall — the GOP already has three shaky seats in Maine, Colorado and Arizona, and a wave could sweep them out in North Carolina, Iowa, and Montana. There’s only one Democratic seat in serious jeopardy, in Alabama.
THE BLUE WAVE: So what would it mean for the markets if the Democrats win the trifecta — the White House, the Senate and the House? First of all, the most immediate changes in a Biden Administration would be regulatory — rolling back Trump’s environmental provisions, re-entering the Paris climate deal, activist executive orders on labor regs, etc. Biden could make huge regulatory changes regardless of who controls Congress.
THEN IT GET TRICKY IN THE SENATE: We expect the wily Mitch McConnell, 78, to win re-election in Kentucky. If he winds up in the minority after the election, he still would have the ability to obstruct because most legislation in the Senate would require 60 votes to break a GOP filibuster.
ARCANE SENATE RULES in general stipulate that most legislation that gets filibustered (the Biden agenda) would require a 3/5ths majority (60 votes) to cut off debate. The Democrats would be very lucky to have 52 or 53 Senate seats after the election; 60 is out of the question.
THIS MEANS BIDEN WOULD HAVE TO COMPROMISE: Based on his long Senate record, Biden knows how to wheel and deal; he always was considered a good negotiator in his 36-year Senate career (he’s the sixth-youngest Senator in history).
BUT WITH THE 60-VOTE RULE, Biden would be unable to get all of his agenda enacted. We would expect some increase in top tax rates for corporations and the wealthy, a minimum tax rate for companies like Amazon, a haircut for the Pentagon, funding for renewable energy, police reforms, more spending on infrastructure, etc.
BUT WE CAN’T SEE the enactment of a Bernie Sanders-type agenda. Biden has been talking recently about enacting a “revolutionary” agenda, and our response is — how do you break a GOP Senate filibuster against a revolutionary agenda? A Green New Deal, free college, Medicare for All and huge new tax hikes will easily emerge from the House — then McConnell would obstruct, even if he’s in the minority.
BOTTOM LINE: A Biden victory would un-do most of Trump’s regulatory changes, would ease up on trade tariffs, and Biden would be far more predictable than the impetuous Trump. The markets should like that. As for sweeping and radical legislative changes, the Senate filibuster rules would be a huge roadblock. The markets should like that as well.
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