Clean Sweep for Biden anticipated, how is Wall Street placed?

Summary

• The prospects of victory for the Democratic challenger Joe Biden are rising, and a clean sweep can be expected for Democrats over Republicans next month.
• Markets have been showing uncertainty through investors on presidential election outcome and a Senate battle to fill the seat of late Supreme Court Justice Ruth Bader Ginsburg.
• On 5 October, markets rose up post recovery reports of President Donald Trump from COVID-19 started pouring in and with the announcement of new stimulus package.
• While Biden has targeted poor Americans in his agenda, President Donald Trump has pledged to bring growth and employment back to the US economy through the extension of existing policies.

A dismal blend of coronavirus worries, and presidential uncertainty has grappled Washington, leaving investors worried amid a volatile environment.

Coronavirus has infected more than 7 million people in the US and resulted in more than 215,032 deaths, as on 6 October 2020.

As per WHO, the COVID-19 death toll has crossed 1 million, globally, with governments injecting nearly US$11 trillion into economies to keep them buoyant. This has sparked fears of the second wave as many countries continue to struggle to contain the virus.

Further, investors are reeling under uncertainty over the outcome of presidential election, to be held on 3 November and potential filling up of the Supreme Court seat after the demise of former Justice Ruth Bader Ginsburg.

Markets regained the momentum on 5 October, with the reports of improving health of President Donald Trump started coming in, elevating investor expectations. President Trump had tested positive for Coronavirus on 2 October, which plunged down the stock markets.

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On 5 October, Dow Jones Industrial Average Index rose 1.68% to 28,148 points, hitting a new 1-month high. While S&P 500 Index rallied 1.8% to 3,408.62 points, and NASDAQ Composite Index climbed up 2.32% to 11,332.49 points.

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S&P 500 Futures also increased amid anticipation of a new stimulus package to receive a nod and dissipation of uncertainty arising from Trump suffering from Coronavirus.

Presidential Candidature in US

To announce candidature for US President, the candidate must meet the below 3 requirements. After going through nomination process, political parties hold national conventions, go through general elections and an Electoral college process to get elected.

Markets pricing in Biden’s win over Trump

Markets are mostly pricing in the triumph of Joe Biden over Trump in the election, to be conducted in November and a clean swing for Democrats in House and Senate polls.

The national run of Joe Biden, Former Vice President over President, Donald Trump has risen with voters contemplating the Democratic challenger better prepared to carry out a range of vital issues than the Republican counterpart.

President Trump and Democrat Joe Biden have put into view a wide array of initiatives amid efforts to reform the tax code, government spending, and other economic policies. However, the proposed policies of both contenders provide completely distinct views of the US economy and its role worldwide.

While Biden wants to target poor Americans by expanding social programs, President Trump’s agenda for his second term was just like his first term, with only a few updates and details, as per the analysts.

As per JP Morgan, the Democratic command on the Senate and the White House would bring about largest changes in policy, while the Republican control would bring only limited new federal policies.

Trump and Biden’s Economic plans

Biden is targeting a pro-growth and progressive tax code through which he plans to raise $4 trillion in extra revenue over 10 years. He suggested a $700 billion plan to enhance manufacturing and technological power of America in July 2020 and an expenditure of $1.3 trillion on infrastructure over ten years, including clean energy movements.

Biden’s 7-point plan includes more testing, ramping up of PPE production, investment in vaccine manufacturing and distribution plan, as well as resolving conflicts with WHO. He has also planned the next government stimulus and relief package to be bigger than $2 trillion and include greater assistance to states.

President Donald Trump plans to restore the US economy. He has signed 4 bills till now to provide economic relief to the US economy from Coronavirus. The Coronavirus Preparedness and Response Supplemental Appropriations Act was the first bill authorised on 6 March and allotted $8.3 billion to support various endeavours.

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This was followed by the signing of Families First Coronavirus Response Act and CARES Act. Trump’s reforms majorly involved re-adoption of same plans that marked his admission to White House in 2016. These plans included balancing the budget by 2026, creating a wall on the US-Mexico border and improving immigration policies.

Trump has cut taxes, decreased regulations, and recorded the lowest unemployment in 50 years before Coronavirus outbreak engulfed the whole world by March 2020.

As per Mark Zandi and Bernard Yaros, Economists at Moody’s Analytics, the poor and middle class targeted by Biden would have to pay similar taxes as they are paying presently, but they would get further benefit of increased government expenditure on housing, healthcare, education and many other social programs.

However, Trump’s reduction in taxes is an extension to the tax cuts passed by the party in 2017. The principal beneficiaries would be higher income businesses and households under Trump Presidency, while government spending would be reduced on healthcare and a variety of social programs, as per the economists.

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Further, there had been an unanimity at Wall Street, earlier that there would be another stimulus package introduced in the US prior to the election that will keep American households and businesses buoyant till a vaccine arrives by 2021. But the death of Justice Ginsburg on 18 September (started a debate on validating her alternative this year) denoted an end to those attempts, which had already halted.

As per market reports, the response of the federal government to the increasing coronavirus cases would be difficult to manage if there was an extended fight over the election results.