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How the markets started to love Biden
The S&P 500 is back near a record high, rising in four of the past five sessions. Analysts say that a “blue wave” election, in which Democrats win the presidency and control of Congress, could be good for the stock market. They didn’t always have that view.
First, they fretted about taxes. When Joe Biden emerged as the likely Democratic presidential nominee, Wall Street focused on the leftward lean of his platform — including a $700 billion infrastructure plan, $775 billion child-care plan and $2 trillion climate plan — and, especially, his plan to raise taxes.
• The potential rollback of Trump tax breaks was “top of mind of equity market investors,” Morgan Stanley analysts noted in June. They warned that “deficit spending and redistribution” under a Democrat sweep might dampen corporate confidence, investment and employment.
Then, stimulus talks failed — and coronavirus cases rose. When Congress passed the CARES Act in March, D.C. insiders dubbed it “triage,” assuming there would soon be a second bill. But talks on a second stimulus package have stalled, with Democrats pushing for an omnibus plan and Republicans favoring stand-alone measures to limit deficit spending. As the economic recovery began to sputter and coronavirus cases rose across the country, analysts began to discuss the possibility of Democratic control in a different way.
• “All else equal, such a blue wave would likely prompt us to upgrade our forecasts,” Goldman Sachs analysts wrote this month, pointing to the likelihood of a giant stimulus package shortly after the inauguration in January and longer-term spending increases after that. The effect of such measures would “at least match” the drag from tax increases, they wrote.
And President Trump refused