JPMorgan says US elections are reducing odds, a result that could affect stimulus and cause more damage to stocks


US President Donald Trump and former Vice President and Democratic presidential candidate Joe Biden speak during the first presidential debate on September 29, 2020, at the Health Education Campus at Case Western Reserve University in Cleveland, Ohio.

  • JPMorgan strategists said on Tuesday that Democratic presidential nominee Joe Biden was likely to shrink in the betting markets.
  • The team wrote in a note to customers, “A high probability of contesting or a close election result would lower the bank’s expectations for fresh incentives and” could put a little pressure on potentially risky markets.
  • A close result could also lead to a divided Congress and prolong the months-long provocation deadlock.
  • Long-term strategies should allocate 40% of the shares of their portfolio, the team said, adding that the upside to equity depends on central asset purchase.
  • For more stories visit the Business Insider homepage.

Strategies at JP Morgan said on Tuesday that markets could be very fast in the Biden Presidency.

Democratic presidential nominee Joe Biden maintained a steady lead in elections in recent weeks, helping many companies adjust expectations for 2021 incentives, tax policy and congressional makeup. Yet the betting markets are now reversing and point to a narrow edge for the former Vice President. The shrinking interval suggests that the chances of contesting elections are increasing, as President Donald Trump has already indicated that they may avoid being out of the race if the margins are relatively close to those in the major states.

The team, led by Nicolos Panigiritoglogo, wrote in a note to clients that a higher chance of competition outcome would cut hopes for new incentives and “potentially put some pressure on risk markets for the near term.” JP Morgan’s strategic stock positioning addresses those concerns and indicates some near-term vulnerability.

Read more: A fund manager, who is doubling the competition in 2020, has told us his strategy for economic recovery in ‘K-shape’ – and only details 2 stocks he added to the market as a recovery.

To be sure, many have already pushed back projections for fresh fiscal support. House Speaker Nancy Pelosi and Treasury Secretary Steven Menuchin remain locked in negotiations for the purpose of reaching a stimulus agreement before the end of the week and passing a bill before Election Day. Yet Senate Republicans withdrew their own petty proposals, setting each party to block other measures.

The deadlock pushed many strategists ahead for Election Day and its possible consequences. Wall Street largely agrees that a Democratic sweep of the White House and Senate would pave the way for the least resistance to a major stimulus deal. A divided government would likely reduce the legislative deadlock and a smaller bill.

JP Morgan said that the lead of Biden’s contract suggests whether or not the election is contested is likely to be split in Congress. Such an outcome would hamper price trading, bank strategists said, as more cyclical sectors would not expect incentives.

Although the shares may face some vulnerability in the short run, the team recommends an allocation of approximately 40% equity for long-term strategies. The upside in the stock market depends more on debt and liquidity creation than fiscal stimulus, strategists said. In return, investors should pay more attention to the Federal Reserve’s asset purchase plans for market insights, according to the bank.

Another relief bill could help the stock, but only to the extent that it widens the concentration of investors to include cyclical areas and value names, the team added.

Now read more market coverage from Markets Insider and Business Insider:

A top strategist says the economy will recover without further stimulus – but markets can sell fast

America can sink into a double-dip recession without timely incentives, ‘Dr. Doom economist Nuril Rubini says

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