Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

The election isn't over but Wall Street is already celebrating

The election isn't over but Wall Street is already celebrating

The world is still anxiously awaiting the outcome of the nail biter 2020 election, but Wall Street is already in full-blown celebration mode.

The S&P 500 has surged nearly 7% this week, putting the benchmark index on track for its best election week performance since 1932, according to Bespoke Investment Group.

The rally reflects a sense of relief among investors that once all the votes are counted, neither party will have a stranglehold over Washington. Despite the twin economic and health crises gripping the United States, no blue wave (or red wave) arrived. Control of Congress is likely to be divided between Republicans and Democrats.

That means whether it's four more years of President Donald Trump or it's Joe Biden in the White House, policy changes are likely to be incremental, not sweeping. And that's a relief to investors, who prefer restraint over extremism.

"Whether it's populism on the right or MMT [modern monetary theory] on the left, there's a lot to be said for moderation," said David Kelly, chief market strategist at JPMorgan Funds. "We're all just going to have to work together."

Goldilocks for Wall Street


Divided government, or "gridlock" in Wall Street parlance, is viewed as the best of both worlds by investors. Fiscal stimulus is likely still coming, just not as much had Democrats swept the election.

Although a smaller relief package could hurt the real economy, it also means the Federal Reserve won't be in a rush to raise interest rates. That's a positive for the market because rock-bottom rates force investors to bet on stocks.

Crucially, if Republicans maintain control of the US Senate, as many expect, that would remove the threat of higher taxes on corporations and affluent households.

In short, the markets are getting a stimulus plan without the risk of tax hikes, regulation and a more aggressive Fed.

"The danger with one-party government going into 2021 is we'd potentially overheat the economy," said Kelly. "It's very easy to hit the accelerator (on stimulus). But the question is whether the car would have any brakes."

That's why investors have piled into tech stocks like Amazon (AMZN) and Microsoft (MSFT), which can thrive -- even if the economic recovery remains fragile.

'Social unrest was a real fear'


Wall Street's extremely positive reaction to the election is something of a surprise.

First, it's noteworthy that investors don't seem frazzled by the cliffhanger nature of the race -- or Trump's efforts to create doubt about the integrity of the electoral process.

"When you turned on your TV to one of the financial networks or cable news channels this morning that wasn't your DVR showing yesterday's news," Paul Hickey, co-founder of Bespoke Investment Group, wrote in a note to clients Thursday. "The election still hasn't been decided and equities are once trading sharply higher."

The Dow climbed more than 500 points, or 2%, on Thursday.

"Markets seem to be content with the prospect of gridlock," Hickey wrote.

Investors are also relieved that their worst fears have not been realized: "Social unrest was a real fear for many and thus far the backdrop is relative calm," Tobias Levkovich, chief US market strategist at Citigroup, wrote in a note to clients Wednesday afternoon.

Has Wall Street already called the election?


Wall Street is similarly taking the ongoing legal battle over the election in stride. The Trump campaign has filed multiple lawsuits in battleground states that threaten to drag out the process.

"While there have been threats of litigation, the basis of such lawsuits is more questionable," Levkovich wrote.

Nicholas Colas, a Wall Street veteran and co-founder of DataTrek Research, put it more bluntly in an interview on Monday: "The market will have a high-quality BS meter on lawsuits from both sides."

And while the major news outlets haven't declared a winner in the race for the White House, analysts say markets see the writing on the wall.

"The path for the President is looking increasingly narrow," Bespoke's Hickey wrote.

JPMorgan's Kelly said: "The markets are looking through the rest of the counting and assuming Joe Biden is president...The market has essentially called it."

No tax hikes or Treasury Secretary Warren?


Wall Street can live with a President Biden, especially if he's blunted by a divided Congress.

First, it means Biden's efforts to unwind Trump's corporate tax cut would die in the Senate. That's crucial, because Citi has estimated Biden's proposed tax hike would have wiped out up to $9 of 2021's projected per-share earnings of $160.

Ditto for other sweeping legislation on healthcare, a financial-transaction tax and climate that would be unlikely to get bipartisan approval from Congress.
Second, a divided government means Biden could be forced to pick moderates, not progressives, for key positions at the Federal Reserve, Treasury

Department and as regulators. That eases Wall Street's fears of Senators Elizabeth Warren or Bernie Sanders in the Cabinet.

"Divided government is generally positive for big banks, regional banks, private equity and credit bureaus," Jaret Seiberg, policy analyst at Cowen Washington Research Group, wrote in a note to clients Thursday.

At the same time, Biden would be expected to take a less aggressive stance on trade. Trump's frequent and volatile use of tariffs have hurt corporate profits and at times spooked markets.

Of course, it's possible Wall Street's celebration is premature. The race is not over, legal challenges are outstanding and questions about the transfer of power linger.

"If the vote count does not settle the outcome clearly this week, a full-fledged contested election will emerge," analysts at BCA Research wrote in a report Thursday. "Risk-off sentiment would then prevail until the election is firmly decided."

But JPMorgan's Kelly expressed confidence the election uncertainty will get cleared up soon.

"Ultimately, markets believe this will be a conclusive election," he said, "even if it's unconceded for a while."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
×