One thing is what happens at the political level and another is how investors interpret it. The historic and spectacular storming of the US Capitol by a tide of Donald Trump supporters has hardly disturbed the markets. Far from being intimidated by the riots, the stock markets look at the results of the Georgia elections, which confirmed the Democratic victory and the hello blue, and hence the calm.
Not even Wall Street, which was still open when the assault began, showed undue concern. Without going any further, the S&P 500 Index, which was up around 1.6%, simply slowed to close at + 0.6%. The trend has been similar in Asian markets, where rebounds have been recorded, and it remains calm in Europe.
The Ibex 35 in Spain and the Ftse 100 London corrected slightly after registering rises above 3% the day before; the Ftse Mib in Italy is also on the verge of green and both Paris and Frankfurt remain positive.
Constructive vision
On one side and the other of the Atlantic, investors mainly value the Democratic victory in Georgia. The Senate elections in that state have been resolved in favor of Biden’s, who unexpectedly won the two senators at stake, so that now Democrats will have a majority in both the House of Representatives and the Senate (In this case, a fair 50-50 victory that is tipped in her favor with the casting vote of Vice President Kamala Harris).
By extension, Democrats gain effective control of Congress, and the markets interpret this as increased fiscal policy support for the virus-ravaged US economy. “A constructive vision is imposed for now, ignoring the consequences of the disturbances in Congress that prevented the bicameral session from confirming Biden’s victory,” they point out from the Department of Analysis of Bankinter.
Expectations that the hello blue opens the door to new fiscal stimuli sustains the optimism of investors, but as warns Jack janasiewicz, portfolio manager At Natixis IM, consider the constraints that Biden will also face. “He mod squad (Moderate Democrats – Manchin (WV), Sinema (AZ) and Tester (MT) – will pose some problems for the progressive agenda. Sharp moves to the left will be hard to come by. It needs to be reaffirmed: the Senate is far from progressive and remains downright moderate”, he points.
Balancing game
In his opinion, we are facing “the ideal scenario: enough to carry out more stimuli, but not enough to get the tax increases to take place”. And it is that the Democratic victory in both houses of Congress eases the path of Biden, but it doesn’t leave your hands completely free and that game of balances is, to understand the markets, the key that will mark the next two years.
Regarding the stimuli, Wen-Wen Lindroth, Asset Management strategist at Fidelity International, considers it “probable that the Biden administration will try to pass a fiscal stimulus package focused on infrastructure, health care, education and childcare. We hope that the political pressure on Democrats, and also on many Republicans, will accelerate the return to the low unemployment level of 3.5% that the US enjoyed a year ago. ”
Biden and his people have until the next by-elections in 2022 to try to carry out a good part of their economic proposal and to James Athey, Investment Director of Aberdeen Standard InvestmentsOne of the potential risks to markets is that less favorable Democratic policies may now be met. “Increased taxes on businesses, capital gains, and income they will be considered as potential negative factors for the exchange, as well as a more restrictive regulatory environment. Stronger antitrust regulation and law enforcement have the potential to suck the wind out of the sails of big tech at a time when valuations there already seem increasingly difficult to justify. Add to that the possibility of a longer rotation of the so-called Covid-19 winners to the losers, the current environment may not be such a perfect environment for the tech giants. ”
“We think this will also result in a increase in corporation tax, but at a level below 28% proposed by Biden during the campaign. A more likely result would be an increase of 2-3% to finance long-term fiscal investments. However, we could see more aggressive action on personal taxes for the highest income taxpayers, “said Fidelity’s Lindroth
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