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Against the popular opinion, JPMorgan says that a win of Joe Biden in the U.S. Presidential Election 2020 could be a positive for the markets. JPMorgan predicts that his victory can ease tariffs on China and boost infrastructure spending.
This week started on a good note for Wall Street as Dow Jones Industrial Average (INDEXDJX: .DJI) surged 450 points or 2% on Monday, July 6. The U.S. stock market has remained volatile over the last month of June swinging between the fears of rising COVID-19 cases and the optimism driven by the reopening of the economy after the May lockdown.
While the stock market is looking ahead for some positive signs on economic recovery, investors are also watching the developments with U.S. Presidential Elections. Many analysts think that Joe Biden’s win could create a negative sentiment for Wall Street. However, JPMorgan strategists say that the market is too negative for a Biden win. In a contrary view, the Wall Street banking giant said that a Biden win in November could be “neutral to slight positive” for the equity market.
“The consensus view is that a Democrat victory in November will be a negative for equities,” the strategists said. “However, we see this outcome as neutral to slight positive.”
The analysts think that the expected tax hit to the S&P 500 Index (INDEXSP: .INX) with a Biden win could be lower than estimated. Besides, it also adds that the increase in the federal minimum wage can have a positive impact on companies.
Is Donald Trump Losing the Ground to Joe Biden?
Earlier this year, Donald Trump was seen in a strong position for getting re-elected back in November 2020, things have changed a bit. The handling of the coronavirus pandemic by the Trump administration and the pan-America riots following the death of George Floyd can possibly shift the votes towards Trump’s Democratic Party opponent Joe Biden.
For the large part of his term, President Donald Trump focused on corporate incentives and tax cuts. Moreover, he often proudly spoke about how the U.S. economy surged to new highs until it finally crashed in March 2020 after the COVID-19 outbreak. Last week during a campaign, Trump also said that the stock market will “crash to nothing” if he isn’t re-elected.
On the other hand, the Democratic Party said that if they come to power they would increase the corporate tax to 28% from the now 21%. But JPMorgan strategists say that Biden’s policies were set during the pre-COVID era and thus they expect things to shift. The strategists noted:
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome.”
JPMorgan also expects that the rise in corporate tax would be lower than 28%. Besides, the banking giant also expects Biden to ease tariffs on China and boost infrastructure spending. “Further, a more diplomatic approach to domestic/foreign policy will likely result in lower equity volatility and risk premia,” they added.
It will be interesting to see how the market factors all the political aspects relating to the presidential election in 2020.