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US-VOTE-ECONOMY-MARKETS-STOCKS-POLITICS
However the US election goes, Wall Street marches on
WASHINGTON, Nov 6, 2020 (BSS/AFP) – From the US presidential election to
the state of the economy, on paper this week did not go well for Wall Street,
and yet stock indices climbed ever higher.
Wall Street’s preferred candidate President Donald Trump has lost key
states and may indeed lose the White House. The US economy is still suffering
from the coronavirus pandemic, and Congress could remain split between
Democrats and Republicans for the next two years, meaning much-needed
stimulus spending may come haltingly or be undersized.
The ingredients are all there for US stocks to plunge — and yet the Dow
Jones Industrial Average is up seven percent for the week and the tech-laden
Nasdaq Composite Index rose nearly nine percent.
What can be behind this paradox?
– No descent –
At the final presidential debate in October, Trump warned the 43 percent of
Americans who invest their retirement savings in stocks that if his
challenger Joe Biden wins, “Your 401k will go to hell.”
The markets have been Trump’s preferred measure of success since taking
office in 2017, and under his administration the Dow has climbed by a third
and the Nasdaq almost doubled.
The growth has been helped by deregulation and corporate tax cuts passed by
Trump, and a Fortune magazine poll in October found that 54 percent of
investors thought the president was better for the stock market versus 42
percent for Biden.
Democrats aren’t traditionally favored by traders, who view them as the
party of tax increases and social policies that could cut in to profits.
But for now, Wall Street doesn’t seem to mind: the fear before the vote was
of weeks-long uncertainty before a winner is declared, but the final
contested states are expected to announce results in coming days.
– Stimulus –
In fact, markets may welcome Biden’s arrival in the White House,
particularly if Democrats are denied control of the Senate, leaving
Republicans in a position to temper his agenda.
A much-anticipated “blue wave” that would have given the Democrats control
of Congress and the White House hasn’t appeared, meaning Biden’s program of
tax hikes on the rich and corporations may be harder to get approved.
“With a split Congress, the market knows that, if President Trump wins,
there won’t be an adverse change in tax policy. The market believes that, if
former vice president Biden wins, there won’t be an adverse change in tax
policy,” said Patrick O’Hare of Briefing.com.
However Sam Stovall, chief strategist at CFRA, said the S&P 500 index has
seen better returns under unified governments, where one party controls both
the White House and Congress.
This also matters for the issue of passing another stimulus measure to help
the US economy recover from the pandemic, after key provisions of a $2.2
trillion measure enacted in March lapsed.
Wall Street wants Congress to pass another massive package — but not one
so big that it would require higher taxes to pay for it.
– Economy suffers, markets benefit –
Outside the stock market, things are not looking great.
The United States this week saw two days of record Covid-19 infections,
topping 120,000 new cases on Thursday, and few believe its economy will
recover with the virus uncontained. Europe is also seeing a surge in cases,
hampering its economies.
Yet investors are still betting on Wall Street, which has been aided by the
Federal Reserve’s decision to slash interest rates to zero at the pandemic’s
start and offer markets trillions of dollars in liquidity.
With scant returns on bonds, investors are now betting on riskier assets
like stocks, and their boom has been helped by Congress’s approval in 2017 of
a measure lowering the corporate tax rate from 35 percent to 21 percent,
which Trump supported.
“The market is basically saying that whoever gets in, it will be
comfortable, and that the winner — whoever it is — is likely to spend
money,” particularly on a stimulus or infrastructure bill, said JJ Kinahan of
TD Ameritrade.
BSS/AFP/GMR/0906 hrs