With Joe Biden surging in the polls, Wall Street executives are preparing for a potential scenario where he becomes president—with some firms warning clients the stock market could take a hit.
The former vice president has a 10-point advantage over the president, according to a RealClearPolitics’ average of national polls and opened up commanding leads in swing states like Wisconsin, Pennsylvania, Florida and Michigan.
Biden even topped Trump in fundraising last month, while Trump’s approval ratings—amid the economic fallout from the coronavirus pandemic—have plunged to 39%, near the lowest levels of his presidency, according to Gallup.
The main concern for Wall Street if Trump doesn’t win reelection is the likelihood of higher corporate taxes: In December 2019, Biden pledged to roll back Trump’s signature tax cut legislation, which massively boosted corporate profits.
While often expressing more moderate views in public, many wealthy executives and investors privately supported Trump for his tax cuts and deregulation efforts; As some now prepare for a Biden presidency, it’s a noticeable change of tone for Wall Street.
Much of the election’s impact on the stock market will depend on whether the Republicans retain control of the Senate—as Democrats would then be less likely to enact major economic changes.
Some finance executives and analysts are warning that if the Democrats sweep the White House and the Senate in November, increased regulation and higher taxes would be bad for businesses and could negatively impact the stock market.
“If it looks like the Senate stays Republican than there’s less to worry about in terms of policy changes,” Liz Ann Sonders, chief investment strategist for Charles Schwab, told CNBC.
The poll numbers for Trump are “bleak no matter how one looks at them,” says Adam Crisafulli, founder of Vital Knowledge. But markets “aren’t focused too much on this issue at the moment,” he argues: “Part of this is a function of 2016, where polls also signaled a Trump defeat for most of the year (although Biden’s lead now is far ahead of where Clinton was at this point in 2016).” The stock market is also assuming the economic landscape could be much different by the time of the election, Crisafulli says, with “an improved COVID backdrop, a possible vaccine, more stimulus, better growth (and lower unemployment)” are all likely to translate into higher poll numbers for Trump.
“A Republican sweep would be viewed as more likely to continue on current tax policy and deficit spending trends,” Morgan Stanley analysts said in a recent note. Major firms like Goldman Sachs have similarly cautioned that a Democratic sweep poses risks to profitability and dividends, which would lead to decline in the S&P 500’s earnings per share for 2021. Others, like Credit Suisse, believe that though a higher tax rate would be a headwind for the market, other Democratic policies would likely “remain supportive for the economy.”
The stock market typically performs better when an incumbent is reelected, while it usually underperforms when the White House flips from Republican to Democrat, according to data from Bank of America. According to a recent RBC Capital Markets survey, the majority of the firm’s clients still believe that Trump’s reelection is a positive for the market, with 60% saying that a Biden presidency would negatively impact stocks.
Although Biden was a heavy favorite over Bernie Sanders in the Democratic primaries, Trump was still viewed as the general election favorite going into 2020. But since the start of the coronavirus pandemic, tens of millions of Americans have lost their jobs and many businesses remain shut down. Facing criticism over his administration’s response to the virus outbreak, Trump’s support amongst voters has begun to whither in recent months. Wall Street had considered the possibility of a Biden presidency before, but it wasn’t until his recent surge in the polls that the outcome began to look more likely.
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