SPONSORED:

Wall Street poised for post-election gains even if Trump loses

Wall Street poised for post-election gains even if Trump loses
© Getty Images

Wall Street traders are banking on steady post-election gains even if President TrumpDonald John TrumpBiden adds to vote margin over Trump after Milwaukee County recount Krebs says allegations of foreign interference in 2020 election 'farcical'  Republicans ready to become deficit hawks again under a President Biden MORE and Republicans lose the White House and control of the Senate in a blue sweep.

Trump has spent much of his presidency touting the record-breaking climb in stock prices on his watch. More recently, he has made unsubstantiated claims that a victory by Democratic presidential nominee Joe BidenJoe BidenBiden adds to vote margin over Trump after Milwaukee County recount Krebs says allegations of foreign interference in 2020 election 'farcical'  New DOJ rule could allow executions by electrocution, firing squad MORE on Election Day would lead to a total collapse of U.S. financial markets.

While traders and market watchers acknowledge that Trump’s enactment of corporate tax cuts, deregulation and hefty government spending helped fuel some of the market’s torrid gains since his inauguration, they expressed confidence the stock market won’t fall with the president’s political fortunes should he be defeated on Nov. 3.

ADVERTISEMENT

“Most investors believe that regardless of the outcome, whether Trump or Biden wins, that there’s enough support mechanisms for markets for them to move higher,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Investors largely expect that regardless of who wins next week, a major COVID-19 relief bill will soon be signed into law, something Trump alluded to on Tuesday.

A victory for Biden and a Democratic Senate majority would also increase the odds of massive spending for COVID-19 testing and treatment, green energy and a long-awaited infrastructure package.

“Investors have gotten comfortable with the idea that a Biden administration isn’t necessarily bad for the stock market outlook,” Arone said.

Either way, the election outcome is unlikely to change the Federal Reserve’s commitment to near-zero interest rates for years to come and to keep pumping cheap money into a fragile economy and strong stock market.

ADVERTISEMENT

Over the course of his presidency, Trump has redefined the relationship between the president and the stock market. While his predecessors kept the volatile performance of Wall Street at arm’s length, Trump has used it as an economic policy report card despite its limited relevance to the 45 percent of Americans who don’t have any investments in stocks.

“Stock Market Up Big. Do I get no credit for this? Never even mentioned by the Fake News. A New Record for Stocks and Jobs Growth. Remember, ‘it’s the Economy Stupid’.  VOTE!!!” Trump tweeted on Oct. 12.

The stock market is indeed up significantly since Trump was elected in November 2016. The Dow Jones Industrial Average, S&P 500 and Nasdaq composite have all set record highs during the Trump administration and have recovered far more quickly from the coronavirus pandemic than the broader U.S. economy.

Trump has argued that Biden’s proposed tax hikes for corporations and the wealthy, along with tougher environmental regulations, would reverse that climb. But Wall Street veterans note that stocks had already been soaring before Trump took office and won’t stop if there’s a change of administration.

“The market implications of an election, even one as momentous as the one we’re having next week, is always overstated,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman bank.

“There are just far bigger dynamics at work that affect the market other than politics.”

Like many market watchers, Clemons said the Fed’s commitment to keeping interest rates near zero percent for the foreseeable future should provide support for Wall Street and the economy broadly. The central bank is unlikely to raise rates until well into 2022 at the earliest, and Fed Chairman Jerome Powell has insisted the bank is “not even thinking about thinking about” hiking rates.

“The credit cycle and economic cycle are inextricably linked, and the Federal Reserve is really the first actor and first influencer,” said Peter Cecchini, founder and chief strategist at AlphaOmega Advisors.

“It’s mostly about monetary policy conditions.”

While the Fed might underpin another four years of stock market gains, traders also see promising fiscal support ahead from either Trump or Biden.

The winner of the election is expected to propose trillions more in debt-fueled spending, especially as a rising third wave of COVID-19 in the U.S. wreaks havoc on the world’s largest economy. Both Biden and Trump have called on Congress to produce another massive coronavirus relief bill, and the fading chances of passage before the election will increase the urgency to enact one swiftly after the election.

Trump and Biden are also expected to prioritize growth-boosting and job-creating initiatives to help the battered economy rebuild once the pandemic is under control. While Trump is set to propose another round of market-boosting tax cuts, economists at Goldman Sachs and Moody’s Analytics expect Biden’s agenda to fuel a faster and stronger recovery if aided by a Democratic-controlled Senate.

If Biden wins but the GOP maintains control of the Senate, the most ambitious of his economic proposals will no longer be viable and the size of a passable stimulus bill would fall sharply. At the same time, a Biden victory and a total wipeout of vulnerable GOP senators could give Democrats sufficient power to cement major tax increases that could shake investors.

Clemons said a Biden presidency and a narrow Democratic majority in the Senate made by moderate victors could strike the perfect balance for markets: ample fiscal stimulus, coronavirus response funding and investments in productivity-boosting energy and infrastructure with scaled-down tax hikes that do little to temper stocks.

“That’s a big economic tailwind,” he said. “That’s a pretty good recipe for equities.”