If you want to get an impression of how much Donald Trump’s chances of winning an election have shrunk, you should ask around on Wall Street. Traditionally, the US financial world wants a Republican in the White House. Republican presidents are seen as business-friendly and as opposed to strict regulation – and therefore good for the stock markets. Trump did not fail investors during his tenure in this regard. Still, more and more professional investors want his challenger Joe Biden to win the November 3rd election. For example, Goldman Sachs chief economist Jan Hatzius recently said in an interview with Forbes magazine that an election victory for the Democrats would likely prompt the investment bank to raise its growth forecast for the US economy.
How did the mood turn so? Biden’s plans if he becomes President of the United States are actually more likely to scare off investors. For example, the Democratic Party candidate wants to impose stricter rules on the labor market and tax corporations and wealthy US citizens higher. However, he also wants, and this should be the decisive factor for many investment professionals, to put more money into hand to help the US economy through the corona crisis. Trump, on the other hand, is blocking a second aid package – a decision that could seriously damage him with regard to his election chances.
Trump would probably give up his blockade course in the event of re-election. “After the elections at the latest, the president, whoever it is, should put together the mother of all stimulation packages,” says Marko Behring, Head of Asset Management at Fürst Fugger Privatbank. So he could start his term of office with a tailwind. Biden, however, has a strategic advantage: As a challenger, he is now unable to wave a fiscal package through. Trump’s demonstrative refusal to agree with the Democrats on the scope of a new aid package, on the other hand, appears petty and envious – and gives the impression that the president is making citizens starve for reasons of election tactics.
If Biden wins, investors should assume there is more economic stimulus, says Dickie Hodges, portfolio manager at Nomura Asset Management. “If Biden then sets up a government team whose members belong to the political center, that will also be seen as positive.” Many investors apparently rate the chance of generous fiscal policy aid as higher than the risks that Biden’s regulatory and tax plans for the Wall Salvage Street. That is understandable. Because whether Trump’s opponent could even implement his plans after an election victory depends on whether his party wins a majority in the Senate.
How far Biden could go would only be revealed some time after his possible election victory. Investors should therefore expect increased volatility on the US stock market for the time being, advises Martin Hermann, fund manager at the private bank Berenberg. “Overall, larger fluctuations are to be expected, even if Joe Biden is the winner,” he says. “Because it is unclear to what extent he could actually put his economic policy agenda into practice.”
Ultimately, the US financial world remains true to itself: The election winner should support the economy, but otherwise stay out of the economy as much as possible. With Biden as president, that could remain a pious wish, says Jörn Quitzau, head of economic trends at Berenberg. “Should Biden win the election, the state would play a significantly larger role in the economy in the future,” he predicts. The Democrat pursues an economic policy agenda that is similar to that in the European welfare states. And in Europe, as we have known since the Obamacare debate, in the opinion of many Americans, there is quasi socialism.