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According to analysts, these are the three possible scenarios

October 29, 2020

5 min read

This story originally appeared at high level

According to analysts, these are the three possible scenarios
According to analysts, these are the three possible scenarios

Days before the November 3rd election in the United Statess markets see three possible outcomes 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 candidate Joe Biden can take over the White House or whether Donald Trump will stay a tenant for four more years, eleven governors, 34 senators and the entire House of Representatives will also be 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 US presidency 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 latest 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.

If the Democrats take the “whole car” they will have two priorities to move forward: A huge stimulus package to get the US out of the economic crisis; and a corporate tax hike to fund all of these expenses.

“At this point in time, it is unlikely that an 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 magnitude 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 increase 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 SP500’s earnings by 9% to 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 gain momentum and the “reopening of retail trade” would pick up pace, ”adds Dwek.

Scenario 2. The Status quo

The other possibility is that everything stays more or less the same; That said, 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 persist. “”Markets may be concerned about fiscal stimulus, but we will likely see the Phase 4 package this yearalthough in the currently negotiated range between $ 1.5 and $ 1.8 trillion, “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 fiscal 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 policies, and creating deadlocks 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.