President Trump loves to brag when the stock market goes up, as if gains are a reflection of his personal awesomeness. But the market is now signaling something ominous for Trump: a surprisingly high level of comfort with Joe Biden, if he beats Trump in the 2020 presidential race.
Wall Street weathervane Goldman Sachs issued a report this week declaring that a Biden win and a Democratic sweep in November could be good for the economy, and bullish for stocks. The reasoning is straightforward. If Democrats win the White House and Senate and keep the House, the odds of a massive stimulus bill in early 2021 are considerably higher than if Republicans are able to stand in the way. A stimulus bill could be as large as the $3.4 trillion package the House passed in May, which is at least three times more spending that Republicans seem willing to accept.
Goldman’s tacit endorsement of Biden comes after forecasting firms such as Oxford Economics, Moody’s Analytics and the Penn-Wharton Budget Model analyzed Biden’s overall economic plan and generally found that it would be better for the economy than the status quo. Biden is calling for as much as $7 trillion in new spending over the next decade, with about $4 trillion in new taxes to help pay for it. His top priorities are more money for education, health care, affordable housing, child and elder care, and infrastructure. His tax hikes would mostly hit high earners, wealthy investors and businesses.
All of this represents an important shift in Biden’s favor. Until recently, Wall Street considered Trump the more business-friendly candidate, because of his emphasis on rock-bottom tax rates and deregulation. But the coronavirus pandemic has highlighted the need for aggressive fiscal stimulus, even beyond the $3.7 trillion in spending Congress approved in April and May. Federal Reserve Chair Jerome Powell was unusually outspoken earlier this week when he all but begged Congress to pass more stimulus.
The direction of stocks is also signaling growing acceptance of a Biden presidency. Biden’s lead has widened both nationally and in most swing states, following Trump’s blustery debate performance on Sept. 26 and his Covid diagnosis the following week. Normally red states such as Georgia and Iowa are now tossups, suggesting Biden could win in a landslide. If investors feared a “socialist” Biden agenda, as Trump keeps claiming, a wider Biden lead would punish stocks. Yet the S&P 500 has rebounded from a rocky September and is up about 7% from a bottom on Sept. 23.
This week’s Trump-o-meter reads MEDIOCRE, the third-highest rating, on guarded optimism that a Biden win might calm rather than roil markets, and generate decisive stimulus spending in early 2021.
The short-term outlook for a fourth stimulus bill is far more discouraging. Trump and House Speaker Nancy Pelosi are both playing political games, with stimulus talks off, then on, then off again. Each side is posturing for political gain rather than doing what hurting workers and businesses need—typical in the weeks before a crucial election. The whole Pelosi-Trump drama is moot anyway, because Senate Republicans have signaled they definitely won’t approve Pelosi’s bill and they probably wouldn’t even approve the White House counteroffer. The likelihood of a meaningful stimulus deal before Election Day is probably less than 25%.
The election, meanwhile, is erupting in a final burst of chaos as the White House becomes the nation’s most prominent Covid hotspot and Trump’s diagnosis upends the schedule for the last two debates. The timing for Trump obviously couldn’t be worse. After convalescing for 10 days or so, Trump may resume his rallies and make at least one more debate performance in late October. But Trump is badly wounded as a candidate. He’s trying to convince voters he can lead the nation out of a pandemic as he and his staff, with the best protections available to anybody, get sidelined with the virus. Trump seems likely to survive Covid, but you can’t say the same for his political career.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: [email protected]. Encrypted communication available. Click here to get Rick’s stories by email.
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