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As the US Presidential campaign heats up, what can be expected on the markets front

09 July 2020

By François Rimeu, Senior Strategist, La Française AM

The Covid-19 crisis has put President Trump in a somewhat difficult situation, which has led some people to question his chances of reelection in November. Indeed, considering what President Trump has accomplished during his term in favor of the corporate sector, there is good reason to worry if some of the measures he put in place were to be cancelled in the event of a Biden victory. But is it that simple?

Just as important to consider is how congress will be divided.

Let us consider some of the main features of Mr. Biden’s project:

  • Raise taxes on corporations, from 21% to 28%, and wealthy households; 
  • Increase the minimum wage (from $7.5 to $15 an hour);
  • Provide $1,700bn in funding for infrastructure and Green New Deal.


In the event of a Biden win, there would no doubt be less political tension across the world, which would be positive.

As far as financial markets are concerned, a Biden win is associated with both positive and negative market impacts. At the time of writing this article, the global perception is that Biden’s program would have a negative impact on equity markets (both in the US and Europe). The main point being that higher corporate taxes could have, according to market estimates, a -20% impact on US equities over his term due to lower earnings. (Source: JPM)

However, for Biden to be able to adopt his program after his election, he will have to obtain a clear majority at congress, otherwise, republicans will most likely block it. As of now, in our opinion, the most likely scenario and the one that markets are currently pricing is a Biden victory with no majority. This scenario is not negative for equity markets, it is broadly neutral but leaves Biden very little room for maneuver.  Even if the Democrats sweep the US presidential election, it remains to be seen how much of those corporate tax reversals will be implemented: Biden’s program was structured before Covid-19 and given the current economic context, business recovery and job growth are likely to be prioritized. 

Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, an invitation or a recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française AM are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.

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