October 29, 2020 5 min read
This article has been translated from our Spanish edition using AI technologies. Errors can occur due to this process. This story originally appeared on Alto Nivel
Days before the November 3rd election in the United States, the The markets see three possible outcomes that the elections will leave behind and the consequences they would have on politics and economics the most powerful country in the world.
Although the focus is on whether Democratic nominee Joe Biden can take over the White House or whether Donald Trump remains a tenant for four years, there will also be 11 governors, 34 senators and the entire House of Representatives elected. .
According to an analysis Natixis gave the Latino media this week, these are the three scenarios the markets envision and their consequences.
Scenario 1. A “blue wave”
Joe Biden wins the presidency of the United States and the Democratic Party retains a majority in the House of Representatives and wins that of the Senate. This scenario is the most plausible for investors according to the most recent surveys, which gives Biden a broad vote advantage. However, in the presidential election of the neighbor to the north, the votes of the electoral college count. We explain here how this system works:
If the Democrats take the “full car” they will have two priorities for moving forward: A massive stimulus package to get the US out of the economic crisis; and an increase in corporate taxes to finance all of these expenses .
“At this point in time, it is unlikely that any agreement (on the economic package) will be reached before the elections. So a possible blue wave means a longer wait, but a much larger tax package. In fact, Biden and the Democrats speak of $ 2.0 trillion ($ 2.5 trillion) in additional incentives and $ 3 trillion in additional spending on infrastructure, healthcare, education, and climate in the United States next years, ”says Esty Dwek. , Head of Global Macro Strategy at Natixis IM.
All of these stimulus measures will continue to add to the US budget deficit, but given the scale of the crisis, this is nothing to worry most analysts right now. What worries the markets more, however, is that Biden has already stated that he intends to raise the corporate tax rate from 21% to 28% (half the pre-Trump tax cut) with a minimum tax rate. 15% and increase taxes on foreign income.
Natixis says these measures are expected to lower the S&P500’s earnings by 9-10%.
Expectations of a more traditional and less impulsive president would be welcome, but politics and tax questions remain. The growth prospects for 2021 will pick up and the “reopening of retail trade” would pick up momentum, ”added Dwek.
Scenario 2. The status quo remains
The other possibility is that everything stays more or less the same; That means Trump wins re-election, Republicans retain a majority in the Senate, and Democrats continue to control the House of Representatives.
This would mean that the political stalemate will continue. “” Markets may be concerned about fiscal stimulus, but we will likely see the phase 4 package this year between $ 1.5 trillion and $ 1.8 trillion, albeit on the scale currently traded, “says Natixis.
There is another twist on this scenario that Biden wins the presidency, but the Republicans keep the Senate as their bastion. ” In this scenario, the Senate would block the Democrats’ largest spending plans despite a financial package expected . It would also likely be some kind of infrastructure investment as this issue was supported by the parties, ”he adds.
Scenario 3. Total polarization
This would be the worst possibility the markets see: Trump is four more years president, but the Democrats are sweeping Congress, which would lead to complete polarization in political affairs.
Control of the Senate and House of Representatives would give Democrats the power to block almost all of Trump’s politics, and creating a deadlock and vetoes would go a long way on many of Trump’s executive orders.
While the markets view the “blue wave” as the most likely scenario, the other possibilities cannot be ruled out. After all, it would not be the first time that the election results in the US have surprised everyone.
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