Name: Wall Street May Be Warming to the Possibility of a Biden Presidency
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Wall Street May Be Warming to the Possibility of a Biden Presidency

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On Tuesday, negotiations between Republicans and Democrats on Capitol Hill over a big preëlection spending bill, which many economists view as essential to bolster the -stricken economy. But, on Wednesday, which Trump spent tweeting while in the White House, the Dow Jones Industrial Average more than five hundred points, its biggest jump since July. What’s going on?One interpretation is that the markets were reacting to yet another reversal on Trump’s part. Just hours after publicly abandoning the bipartisan talks, he Democrats to pass some individual spending measures, including another bailout for the airlines and a twelve-hundred-dollar cash payment to low-income and middle-income Americans. But this theory doesn’t account for the fact that many Wall Street analysts had already discounted the possibility of a big stimulus being passed before the election. For months, it’s been clear that a significant number of Senate Republicans would such a package, and it never seemed likely that Mitch McConnell, the Senate Majority Leader, would agree to pass a broad spending bill with Democratic support. When Trump called off the talks, he was bowing to this political reality.So what was driving the market action on Wednesday? In the past few days, a raft of new have indicated that is running well ahead of Trump. If Biden goes on to win the White House, and the Democrats also gain control of the Senate—which the current polling suggests is a genuine possibility—a Biden Administration would almost certainly push through a big stimulus package, which would give a much-needed boost to the economy and corporate earnings, at least in 2021. “I think that the market is finally working out the idea that a Democratic sweep is the best outcome for economic growth, certainly for next year,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, told me, after the stock market closed on Wednesday. “There will be more stimulus under Democrats than Republicans. I think it will be targeted stimulus. And then, of course, you’ve got Biden’s Build Back Better thing, which is a multitrillion-dollar program. The two things together are going to be far bigger than any possible tax increase.”Other analysts agree that a Biden Administration, especially with a Democratic sweep, would have positive implications for the economy. “All else equal, such a blue wave would likely prompt us to upgrade our [growth] forecasts,” Jan Hatzius, the chief economist at Goldman Sachs, on Monday, in a letter to the bank’s clients. “The reason is that it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the long term tax increases on corporations and upper-income earners.”The Goldman Sachs circular echoed an by Mark Zandi and Bernard Yaros, two economists at Moody’s Analytics, which examined a number of different scenarios for the post-election period and concluded that the economic outlook “is strongest under the scenario in which Biden and the Democrats sweep Congress and fully adopt their economic agenda.” I spoke with Zandi on Wednesday, and he said that the precise size of a Biden stimulus package would likely depend on the makeup of Congress and the state of the economy after the Inauguration. “I think they’d get at least the $2.2 trillion that the Dems want now,” he said. “If the economy starts to flag, as I would expect, without additional support, in that kind of environment they could decide that we need a much bigger, more fulsome package”—perhaps as large as three trillion dollars.Even at $2.2 trillion, a Biden stimulus would amount to more than ten per cent of the G.D.P. That would make it the second-largest stimulus in U.S. history, second only to Congress enacted earlier this year, in the CARES Act and other emergency-spending bills. With interest rates in a historic trough, the inflation rate very low, and plenty of spare capacity in the economy, an increase in federal spending of this magnitude would significantly raise output and employment so long as the pandemic was brought under control, Zandi argued. “If you get a vaccine, or whatever, and we are on the other side of that, and you throw in a three-trillion-dollar package, I think you get to full employment by spring of 2022, instead of winter, 2023,” Zandi said. “That would make a huge difference to very stressed groups, and take the edge off the social unrest and the political discord.”Of course, making economic projections is a risky proposition in any circumstance, let alone during a pandemic. Given uncertainty about the path of the virus and other variables, including consumer psychology and the global economic outlook, actual economic outcomes are likely to differ significantly from any predictions that are made today. At this stage, though, the most striking development is that Wall Street is taking seriously the prospect of a Biden Administration, together with the possibility of an end to political gridlock on Capitol Hill. And the initial reaction has been positive. “What markets care about now is: Who is going to be most competent dealing with COVID and the aftermath, and who is going to offer the most stimulus?” Shepherdson said. “The bottom line is that House Democrats have passed a three-trillion-dollar stimulus, most of which I think will be enacted if we have a blue sweep.”Between now and January, the stock market could have second thoughts about a Biden Administration and a Democrat-controlled Capitol Hill. And the polls could still swing back toward Trump before November 3rd, in which case Wall Street would pay more attention to him again. Right now, though, investors and analysts are starting to look beyond this Presidency and focus on the next one. And some of them like what they see. has been a staff writer at The New Yorker since 1995. He also writes a for newyorker.com.The best of The New Yorker, every day, in your in-box, plus occasional alerts when we publish major stories.

On Tuesday, negotiations between Republicans and Democrats on Capitol Hill over a big preëlection spending bill, which many economists view as essential to bolster the -stricken economy. But, on Wednesday, which Trump spent tweeting while in the White House, the Dow Jones Industrial Average more than five hundred points, its biggest jump since July. What’s going on?One interpretation is that the markets were reacting to yet another reversal on Trump’s part. Just hours after publicly abandoning the bipartisan talks, he Democrats to pass some individual spending measures, including another...

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John Cassidy

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Wall Street May Be Warming to the Possibility of a Biden Presidency

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