Election Week Arrives, Economists Contemplate Various Scenarios

The moment has finally arrived. By the time this commentary is published, election day will have passed, and we can only hope that the presidency and congressional elections will have been decided. That is perhaps an overly optimistic expectation, but, either way, economists and financial market participants have been contemplating the various scenarios Blue wave, Red wave, or status quo and how it might impact fiscal policy, regulation, etc. Recent polling suggests a Blue wave (Biden wins and Democrats gain majority in Congress) is the highest probability event, but nearly everyone is less confident in polling figures given the 2016 election surprise. Nevertheless, we can still speculate on likely policy initiatives in each scenario. The general market expectation is that a Blue wave would result in the largest fiscal stimulus bill, which, all else equal, would be bearish for Treasury yields. At the same time, a very active Fed should limit significant curve steepening. A status quo or scenario where Republicans retain majority in the Senate would likely result in the smallest fiscal stimulus.

October At-A-Glance

• Election week has finally arrived, and economists and market participants continue to contemplate various outcomes as it relates to future fiscal policy, regulation, and more.
• Third quarter GDP growth was better than expected, aided by aggressive monetary and fiscal policy.
• The resurgence in COVID-19 cases in Europe has sparked fresh lockdowns in the U.K., France, and Germany. Fears that another wave could occur in the U.S. weighed on risk assets in October.

If Biden wins, his top priorities are expected to be COVID containment, which would include a large stimulus and infrastructure spending package, as well as a tax reform bill that would likely include raising the corporate tax back to 28%. However, if Republicans retain majority in the Senate, these initiatives become less probable, and Biden would likely have to rely on executive orders amid legislative stagnation. Executive orders related to regulatory actions would be a higher probability either way, particularly regulations related to fossil fuels and the energy sector (more so than increasing regulation on the financial sector). In a status quo scenario, we would expect more of the same over the next four years, with the Trump administration focused on confronting China and other trading partners via tariff threats.

Read more about the latest economic data and overall market trends here.

This market overview is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Read more from ALM First about the latest economic data releases and overall market trends at Trustcu.com.