For Trump, if Biden wins the election, Wall Street will go down. Here's what's going to happen according to experts
For some time now, President Donald Trump has been warning that if his Democratic opponent Joe Biden wins in the November elections, the US stock market could collapse. “If it wins the election, Wall Street will collapse. Biden would raise taxes and introduce new rules, ”Trump said in a recent interview with Fox.
But what do the managers and financial experts think about it? It is widely believed that a Biden win could have a negative but limited impact on the markets. In any case, it must be said that in recent times Wall Street has shown some signs of fatigue, after having set new records during the summer of 2020. "Despite the persistent spread of Covid-19, equities have progressed rapidly in August (MSCI World up another 6.6%), supported by data recovery, higher than expected profits and vaccine hopes. The S & P500 has reached new highs "summarizes Thomas Hempell, Head of Macro & Market Research at Generali Investments.
If, on the one hand, the pressure from Covid-19 eases on the markets, on the other, according to the expert from Generali Investments, the political risk is growing. "The November elections - observes Hempell - can lead to a 'blue wave', with Democrats victorious in both presidency and Congress, which markets fear over possible tax increases on wealthier companies and families. In the worst case, Trump could contest the results, leaving room for weeks of constitutional uncertainty ”.
"After the relative calm of the summer - underlines Mark Dowding, investment manager (ie) of BlueBay, in his comment on the markets for the week from August 31 to September 4 - US equities started September with a more volatile trend. After hitting the highs at the beginning of the week, the situation was reversed with the Nasdaq losing 5% in a single session and market participants who began to question the sustainability of the high valuations in the tech segment ”.
Meanwhile, Dowding also points out, “President Trump continues to catch up in the polls against Biden, with some betting providers even giving him the likely winner in November. Interestingly, the increased likelihood of a heads up has seen markets begin pricing in greater volatility around the voting period, with October Vix contracts rising, reflecting the greater risk of a contested election. "
In a recent report on the US presidential elections and their possible impact on the economy and markets, Nannette Hechler-Fayd'herbe, head of investment (ie) international wealth management at Credit Suisse, hypothesizes four possible scenarios: a landslide victory for the Democrats who conquer both chambers of Congress; Biden's victory with a mixed Congress; confirmation of Trump with a mixed Congress; landslide victory of the Republicans. The scenario that the Credit Suisse expert believes most likely is the second, which sees Biden as the new president and a mixed Congress.
"In this eventuality - notes Hechler-Fayd’herbe - Democrats would remain severely limited in the legislation and in the definition of policies and the practice of major presidential executive orders adopted since the Obama administration and carried out during the Trump administration would continue. The huge US fiscal deficit would limit new social programs or spending on the environment or infrastructure ".
For the Credit Suisse expert, the main policy changes in the case of a Biden presidency with a mixed Congress could be the following:
- a moderate increase in corporate taxes from 21% to 28%, which would offset half of Trump's tax cuts;
- a reversal on Trump's reduction of the maximum tax rate on top incomes;
- an increase in the tax rate on capital gains and dividends.
At the same time, Hechler-Fayd’herbe thinks that "there would probably be regulatory changes in various areas, such as the environment, energy and finance, as these do not require congressional approval in most cases." As for China, "the efforts aimed at curbing its military and technological rise are destined to continue, which is why we believe that hopes for a more liberal attitude in the commercial sphere are misplaced," says Hechler-Fayd’herbe. Which concludes: “The impact on US equities would be neutral to moderately negative. With fiscal policy that could, if anything, become more restrictive, monetary policy will need to remain highly expansionary. In summary: a Biden presidency will likely mean lower rates for an even longer period ”.
