The election results to date are already affecting the stock market and stand to have major consequences for stimulus talks and taxes, according to Dan Clifton, head of Washington research at Strategas Securities.
Clifton highlighted his outlook on these and other issues Wednesday during a webcast sponsored by BNY Mellon Wealth Management entitled “Election 2020: A Year of Unprecedented Disruption.”
Here are six takeaways from the webcast:
1. Near-term uncertainty and an ultimate Biden win are priced into markets.
The financial markets are already “assuming that Joe Biden is going to be president unless something” changes in the final key states, Clifton said.
If a decision in the presidential race is delayed, “the market can look through that [and] voters can look through that — they understand that there’s a process,” he said. However, “the concern here is that the delayed election is like a piñata and the longer it stays up there, it can get whacked,” Clifton warned.
The researcher predicted if a contested election starts weighing on the markets and consumer confidence, “fiscal and monetary policymakers will step forward to ensure that there is some sort of economic stabilizer.”
2. Investors are repositioning for divided government.
“Companies with high tax rates have been underperforming [on] the equity market under the idea that they are going to be the ones that are most hit by” Biden’s proposed corporate tax rate increase, Clifton said.
Companies that advise on mergers “have been performing almost perfectly with the probability of Biden winning, because capital gains taxes were going to go up and business owners may want to sell their company,” he explained.
Therefore, “you had already seen the behavior change in place from companies and individuals, and I think just a lot of that just goes away now” that Republicans are likely to keep the Senate, Clifton said.
3. House Democrats will compromise on stimulus.
The fact that Republicans have gained at least five seats in the House and will likely pick up about another five signals that House Speaker Nancy Pelosi “is probably going to have to compromise [more] on some level of stimulus when we get to that debate,” explained Clifton.
A stimulus deal will get done soon, possibly before the holiday season, he said. “We just need a bridge until we get a vaccine” for COVID-19, which seems to be coming soon.
The amount of stimulus requested by Pelosi will come down close to $1.5 trillion, Clifton predicts.
4. Tax hikes will be on hold until at least 2022.
Donald Trump will push for more tax cuts if he manages to pull out a win in the presidential election, according to the researcher.