U.S. election results will have major consequences for stim- ulus talks and taxes, according to Dan Clifton, head of Washingtonresearch at Strategas Securities.
Here are five takeaways from thewebcast, “Election 2020: A Year ofUnprecedented Disruption,” that wassponsored by BNY Mellon WealthManagement in early November.
1. Investors are repositioning for
divided government.
“Companies with high tax rates have beenunderperforming [on] the equity marketunder the idea that they are going to be theones that are most hit by” Biden’s proposedcorporate tax rate increase, Clifton said.
Companies that advise on mergers“have been performing almost perfectlywith the probability of Biden winning,because capital gains taxes were goingto go up and business owners may wantto sell their company,” he explained.
Therefore, “you had already seen thebehavior change in place from companiesand individuals, and I think just a lot ofthat just goes away now” that Republicansare likely to keep the Senate, Clifton said.
2. House Democrats will
compromise on stimulus.
The fact that Republicans have gainedat least nine seats in the House signalsthat House Speaker Nancy Pelosi “isprobably going to have to compromise[more] on some level of stimulus whenwe get to that debate,” explained Clifton.
A stimulus deal will get done soon,possibly before the holiday season, hesaid. “We just need a bridge until we geta vaccine” for COVID- 19, which seemsto be coming soon.
The amount of stimulus requested byPelosi will come down close to $1.5 trillion, Clifton predicts.
3. Tax hikes will be on hold until at
least 2022.
“There was probably going to be morecandy — fiscal spending — than spinach — tax increases” in Biden’s 2021agenda, explained Clifton, who is worried the proposed tax increases wouldcome into effect mid-2021 and “reallystart to hurt earnings in 2022.
“If Mitch McConnell is going to runthe Senate, the chances of tax increaseare extraordinarily low” even in a Bidenpresidency, he said.
There may be “some sort of fiscal deallater on in the year” in which some taxesgo down and some taxes go up, Clifton said.
However, “it’s an extremely low probability that high-net-worth investors,small-business owners and shareholdersof companies are going to have to worryabout what their tax rate is going to befor 2021,” he explained.
4. Biden’s win is a positive for
Chinese stocks, at least for now.
Trade policy is the “single starkest dif-
ference” between a Biden and Trump
presidency, Clifton noted.
A Biden win means the likely removalof tariffs that Trump placed on Europeancountries, and he is expected to workwith U.S. allies in Europe to pressureChina to change its unfair trade policies,Clifton predicts.
A Trump win would have meant thatmanufacturers’ supply chains wouldquickly shift more to Vietnam fromChina; but a Biden win means “decoupling” from China “happens much slower,” he predicted.
5. Republicans will agree to a debt
ceiling increase — for a price.
In July 2021, members of “a splitCongress” — if it holds up after therunoff for the two senatorial positions isheld in Georgia in January — are “goingto need to work together to raise thedebt ceiling,” Clifton said.
Noting the U.S. has “accumulated an
enormous level of debt in response to
the coronavirus,” he said, Republicans
are “likely going to be looking at some
sort of austerity as a condition for rais-
ing the debt ceiling.”
How that will be resolved remains
unclear. But Clifton says that when there
was a similar issue with the debt ceiling
in 2011, then-Vice President Biden and
McConnell worked together to “ham-
mer out the deal” in the Senate.
“I’m actually more confident in the teamon the playing field if you have a Bidenpresidency and a McConnell Senate and aPelosi speaker,” he said. “They know howto get stuff done for their constituents.”
Jeff Berman can be reached at jberman@alm.com.
PORTFOLIO PERSPECTIVES
By Jeff Berman
5 Market Predictions Based on Election Results
Several potentially market-moving developments are likely, based on the
election results so far, according to Dan Clifton of Strategas Securities.
Biden:levradin/Shutterstock;McConnell:ScottyPerry/Bloomberg;Pelosi:Tinxi/Shutterstock
