Wall Street begins to silently warn of a Biden presidency


TOPLINE

With Joe Biden on the rise in the polls, Wall Street executives are preparing for a potential scenario where he becomes president, with some companies warning clients that the stock market could be affected.

KEY FACTS

The former vice president has a 10-point lead over the president, according to the RealClearPolitics national poll average, and opened dominant tracks in changing states like Wisconsin, Pennsylvania, Florida, and Michigan.

Biden even topped Trump at the fundraiser last month, while Trump’s approval ratings, amid the economic fallout from the coronavirus pandemic, have plummeted to 39%, near the lowest levels of his presidency, according to Gallup.

Wall Street’s main concern if Trump does not win re-election is the likelihood of higher corporate taxes: In December 2019, Biden pledged to reverse the signing of Trump’s tax cut legislation, which massively boosted corporate profits.

Although he often expresses more moderate views in public, many wealthy executives and investors privately supported Trump for his tax cuts and deregulation efforts; As some are now preparing for a Biden presidency, it is a remarkable change of tone for Wall Street.

Much of the impact of elections on the stock market will depend on whether Republicans retain control of the Senate, as Democrats would be less likely to enact major economic changes.

Some executives and financial analysts warn that if Democrats sweep the White House and Senate in November, more regulation and higher taxes would be detrimental to companies and could negatively affect the stock market.

“If it looks like the Senate is still Republican, there is less to worry about in terms of policy changes,” Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNBC.

Critical boss

The poll numbers for Trump are “bleak, no matter how you look at them,” says Adam Crisafulli, founder of Vital Knowledge. But markets “aren’t too focused on this issue right now,” he argues: “Part of this is a 2016 feature, where polls also pointed to a defeat for Trump for most of the year (although Biden’s leadership now is way ahead) where Clinton was right now in 2016). ” The stock market is also assuming that the economic outlook could be very different by the time of the election, says Crisafulli, with “a better COVID backdrop, a possible vaccine, more stimulus, better growth (and lower unemployment).” likely to translate into higher poll numbers for Trump.

Crucial quote

“A Republican sweep would be considered more likely to continue current fiscal policy and deficit spending trends,” analysts at Morgan Stanley said in a recent note. Major companies like Goldman Sachs similarly warned that a Democratic sweep poses risks to profitability and dividends, leading to a decline in S&P 500 earnings per share by 2021. Others, such as Credit Suisse, believe that although a Higher tax rate would be a headwind, other Democratic policies would likely “continue to support the economy.”

Surprising facts

The stock market generally works best when a incumbent is re-elected, while it generally underperforms when the White House switches from Republican to Democrat, according to Bank of America data. According to a recent survey by RBC Capital Markets, most of the company’s clients still believe that Trump’s re-election is positive for the market, and 60% say that a Biden presidency would negatively affect stocks.

Key background

Although Biden was a big favorite over Bernie Sanders in the Democratic primaries, Trump was still seen as the favorite in the 2020 general election. But since the start of the coronavirus pandemic, tens of millions of Americans have lost their jobs and many businesses. remain closed. down. Faced with criticism of his administration’s response to the virus outbreak, Trump’s support among voters has begun to decline in recent months. Wall Street had considered the possibility of a Biden presidency before, but it wasn’t until its recent surge in polls that the result began to seem more likely.

Further reading

Almost 20 Swing State polls were published today, Biden leads in all of them (Forbes)

Biden Extends Leadership Over Trump In Race For Billionaire Donors (Forbes)

Trump’s strength with white voters fades as Biden gains advantage of electoral college (Forbes)

Dow sinks 700 points as US hits record number of new coronavirus cases (Forbes)

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