21.07.2020 – Special Report. Deadline Sunday, 26 July: 100 days to go until the election of the US President. Apparently, the Democrat Joe Biden with his announced new socialist policy is uncatchable ahead. The bears are already celebrating. But maybe the surveyors simply haven’t learned anything new and Donald Trump manages the triumph – and then a completely different red wave rolls over the USA. Remember: The color of the Republicans is red. We will shed light on the background and the consequences for Wall Street.
United Socialist States of America
In the best survey collection available, that of RealClearPolitics.com, Biden is in the lead with a good 8 percentage points. Amazing, because the challenger has recently adopted some extreme left-wing positions: immediate tax increases for companies, phasing out fossil fuels, using taxpayers’ money for abortions, and of course free health care for illegal migrants. He also promised to stop the deportation of illegal criminals during the first 100 days of his term of office. Which is why star author Joel B. Pollak also hints at the possibility of revolution in his new book “Red November”. He believes: Either the Democrats ruin themselves or they build the new United Socialist States of America. Not good for the stock market.
Goldman customers get nervous
Goldman Sachs suspects that after a Biden victory, corporate taxes would rise from 21 to 28 percent. Trump had cut the rate from 35 to 21 percent. This would be in addition to other Biden taxes and a dent in the gross domestic product. The investment bank’s clients were already quite nervous – a Dems victory would take 20 dollars off the earnings per share in the S&P 500, and then 150 dollars. The Gold Men said that it would depend on how the market assessed other factors – the US could adopt a less aggressive trade policy again and join international organisations.
VIX-Call in November
Goldman also expects considerable uncertainty after the election due to an extended counting in the course of the increased postal vote in Corona times – after all, new elections in Congress are also pending. We add: The postal vote is vulnerable to fraud. In any case, Goldman sees some volatility in the weeks after the election and advises against the December future in the fear indicator VIX (cut-off date: 18 December).
BlackRock is skeptical
Reuters recently stated that the number of bets against the US currency on the futures markets is higher than it has been for two years. Laffer Tengler Investments, for example, liquidated its dollar positions, as a victory for Biden would lead to slower growth and pressure on the US currency. The BlackRock Investment Institute lowered its ratings for U.S. equities on concerns about weakening fiscal stimulus and election uncertainty, according to Reuters. “The two parties are as far apart in their policies as ever, so the outcome will affect the markets,” BlackRock analysts concluded.
UBS and Helaba bearish on energy and financial stocks
A possible new regulation by a democratic government could also create a headwind for energy and financial stocks, UBS Global Wealth Management continued. “Biden would probably join the current international mainstream in terms of increased efforts to avoid greenhouse gases,” Helaba said.
Morgan Stanley neutral
Only Morgan Stanley ruled that it didn’t matter who won the election. In this way a tax increase would be balanced by a higher minimum wage and better health care. Foreign policy will also be less confrontational. There is also the issue of government spending: “investors may be too focused on the tax side of the equation, overlooking the support for aggregate economic demand from fiscal expansion”.
China-Appeasement ahead
Presumably, Washington under Biden would again turn to a more China-friendly policy, including the elimination of customs duties. All US stocks affected by this dumping would be allowed to go down. And China stock would probably go up. Even in Barack Obama’s administration under Vice President Biden, the People’s Republic was allowed to export cheap goods to the US undisturbed, and the US steel and textile industries suffered as a result. In return, son Hunter Biden, with the support of the Bank of China, was allowed to float Chinese shares on the stock exchange via the investment vehicle “Bohai Harvest RST (Shanghai) Equity Investment Fund Management” – a veritable license to print money.
Four options for the stock exchange
11) If Biden has a clear election victory and the Dems march through Congress, the stock market is likely to enter a long bear market.
2) An aggravated crash is likely to occur if Biden is pushed aside a few weeks after an election victory due to completely unexpected health problems and a vice president from the radical left wing takes over the presidency. The consequence of such a coup would be a red wave for stock market prices – then civil war would break out in America. By the way, the self-declared Socialist and Democratic Member of Parliament Alexandra Ocasio-Cortez has just called for taxes to be collected in future on book profits, i.e. not on realised profits – such a law would be a stopper for any investment!
3) If the situation remains tense for a long time because of disagreements in the absentee ballot and it is unclear for weeks who will win, then new unrest will probably flare up. Thus it becomes uncomfortable on the stock exchange. In this case an investment in the VIX would be the best option.
4) If Trump clearly wins, on the other hand, a new, strong bull market is likely to emerge – especially if the victory is accompanied by a Republican triumph in Congress.
The Bernstein-Bank keeps an eye on the matter for you and wishes you successful trades and investments!
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