The stock market has risen dramatically since March, even as former US Vice President Joe Biden consistently outperformed President Donald Trump in voter polls. That led many to believe that Wall Street wouldn't panic if Mr. Biden was elected.
However, according to CNN , things are not so simple. Top economists at AllianceBerntein - a global wealth manager - are concerned that Mr. Biden's victory plus Republican majority in the US Senate will be bad news for the stock market. .
According to Eric Winograd, senior economist at AB, Republicans in the Senate can block economic stimulus packages launched by Democrats. But this is the time when Washington needs to spend a lot more to support consumers and small businesses that have been hit hard by the Covid-19 epidemic.
Stock market nightmare
The risk that the federal budget will be tightened will extinguish a new rebound of the US economy and stock market. "A Democratic president and a Republican Senate can cause more problems in the market," commented Winograd.
"The Senate may completely stop new stimulus calls if the White House changes hands," he stressed. According to Mr. Winograd, because the US economy and financial markets are highly dependent on stimulus packages, the risk of a double recession is huge. At that time, the financial market will be severely affected.
Winograd argued that the Democratic takeover of the Senate and re-election of President Trump would be "a more benign version" of the crisis. With this scenario, even when the Senate and the White House reach an agreement on a new stimulus package, it will be a "slow and painful process", AB said.
Mr. Winograd admitted that the absence of Mr Trump's tax cuts would be a short-term problem for the stock market. However, this can be offset by increased spending on infrastructure during Mr. Biden's presidency.
Investors believe that the most ideal scenario for the stock market is that one side wins completely convincing. According to a Hartford Funds survey of nearly 1,000 investors last month, 46% of people think the White House and the Republican-controlled Senate are the best for the market.
Brian Kraus, Head of Investment Advisory at Hartford Funds, said 32% of respondents think the market will perform best if Mr. Biden wins and Democrats take over the Senate. Only 22% of people think that a division of power between the two is good for stock prices.
Fear inflated?
However, Dec Mullarkey, CEO of Investment Strategy at SLC Management, said that a mixed government means more opportunities for compromise. "Markets will prefer a mixed government because there is more negotiation," he explained.
The good news for Wall Street is that many experts believe that both Trump and Biden are inclined to reappoint Federal Reserve Chairman Jerome Powell for the next term. This move will bring the necessary stability for investors.
Mr. Gregory Staples of DWS stated that the possibility of Mr. Biden being elected and the Republican party having a majority in the Senate is 30-40%. According to him, the investors' anxiety was overblown. Mr. Biden will realize that enacting purely Democratic policies could do more harm than good. And negotiation is the key.
"Mr. Biden may be more cautious in raising corporate taxes. For example, raising taxes from 21% to 28% has only a small impact on corporate profits for companies with large market capitalization," he said. said Staples.
Dec Mullarkey at SLC Management said that Mr. Biden may not be as tough as the incumbent US president on trade deals. This is what many investors want, especially multinational companies doing business with China and Europe.
However, Mr. Kraus of Hartford said investors only yearn for certainty in times of political turmoil. That is why investors hope for a complete victory, whether for Mr. Biden or Mr. Trump.
According to him, the biggest risk to this election is not who is the winner, but the possibility that power is divided between Democrats and Republicans, leading to a prolonged stalemate.