Displaying items by tag: republicans
President Biden renominated Jerome Powell as Fed Chair on Monday this week in perhaps the purest bi-partisan reaction from the President since he entered office. The news was celebrated on wall street as both the bond and equity markets felt the reprieve. Additionally, Republicans on the senate banking committee rejoiced at the pick given Powell’s historical ties to the republican party. Powell was assumed to be in a close contest for the Fed position with Lael Brainard, but ultimately continuity was valued moving into the next phase of the post-covid recession. Still Powell’s road is difficult moving forward given sluggish employment and growth, and rising inflationary pressures.
FINSUM: This was a wise decision by Biden politically, and markets trust Powell to be dovish even as a republican which is the best of both worlds for the economy.
Advisors, try to breathe just a tiny sigh of relief, your clients just got a victory. It is being reported by prominent political paper The Hill that big Washington lobbyists have already succeeded in greatly watering down Biden’s tax plans, and perhaps eliminating their chances. Evidently lobbyists have done very well at getting middle of the road Democrats to turn against Biden’s tax plans. Biden’s plans include increasing long-term capital gains taxes to regular income tax levels and eliminating the “step-up in basis” at death in inheritance.
FINSUM: This has two clear effects on Biden’s plan. Firstly, because the numbers are so tight, Biden can’t afford to lose anyone from his party in a vote. Secondly, and relatedly, this means the middle of the road Democrats have a lot more power to shape the proposal that makes it to a vote.
There are just under 100 days left until the election and there is a lot on the line for markets. The economic approaches of the Trump administration and the potential incoming Democrats could not be more different, which means there are huge implications for stocks. Here is the good news—over the last 40 years, markets have historically risen leading up to the election, and volatility has usually decreased. Now the big possible twist is the COVID pandemic, a major factor that has not occurred during an election cycle. The most comparable election cycle seems to be 1968, when the US was going through similar levels of social unrest. The S&P 500 gained more than 3% in the run up to that election.
FINSUM: As we see it, the two big risks are COVID (and its economic consequences), and a leftward move by Biden. The Fed will certainly soften the blow of the former, while the latter remains.
Republicans are supposed to debut their new stimulus package today—after a long wait that neither side was happy about—but the details are still unclear. Some prominent party members hinted at details of the proposal on CNN yesterday. So far, it looks like enhanced unemployment benefits will be continued, but at a lower amount, an eviction moratorium would be extended, and direct $1,200 payments may continue for a subset of Americans. Republicans say they want to negotiate a stop-gap deal while a larger package is hashed out. House speaker Pelosi wants the full package negotiated now.
FINSUM: Given the length of time it may take to hash out a complete new deal, millions of Americans would probably be happy if a basic short-term package was agreed ASAP.
On Friday we ran an article covering which sectors and stocks would do well if the Republicans swept the election. Today we are doing the opposite side of that coin—the stocks that will win big if the Democrats sweep. Democrats are currently leading in the presidential poll and seem likely to keep ahold of the House, while the Senate looks like much more of a stretch. That said, if a sweep happens, infrastructure may be a key sector to surge as a large infrastructure bill would seem likely. Other sectors likely to gain are renewable energy, semiconductors, consumer staples, and oddly, gun stocks (since sales will likely surge on fears of regulation).
FINSUM: The infrastructure play seems like a good one, semiconductors also (like Western Digital). We still think a more likely scenario is a split Congress.