Why Wall Street is warming up to Biden — despite his policies

The stakes are especially high for Wednesday night’s vice presidential debate, as the matchup between Kamala Harris and Mike Pence will play out amidst a backdrop of fast-rising economic uncertainty and a warning from Federal Reserve Chairman Jerome Powell that there is a shrinking window of time to prevent widespread financial ruin for ordinary Americans.

Markets fell Tuesday afternoon after President Donald Trump ordered his surrogates to stop negotiating additional stimulus, but rose Wednesday morning after he pushed for piecemeal relief in a string of late-night and morning tweets. This whipsawing illustrates what a growing number of Wall Street participants are concluding: That a “blue wave” in November is the nation’s best shot at economic recovery. While markets generally cheer the lower tax rates and regulatory rollbacks championed by Republican administrations such as Trump’s, the unprecedented job loss and economic disruption caused by the coronavirus pandemic has left many observers concluding that a united government — even under a party that has historically been seen as a foe by corporate America — might be better equipped to provide the critical fiscal support a bitterly partisan Congress cannot.

“Investors are left to wonder if the election will deliver a White House and Congress intent and able to get something or done, or willing to risk a nascent recovery petering out,” said James McCann, senior economist at Aberdeen Standard Investments.

“With both houses of Congress and the White House controlled by Democrats, any spending measures would meet very little resistance,” said Keith Buchanan, portfolio manager at Globalt Investments.

On Tuesday, Fed Chair Powell addressed the need for more fiscal stimulus for American families and small businesses in more forceful terms than he has used previously, saying the fallout of failure to do so in short order could be “tragic.”

In a new research note, Goldman Sachs analysts predicted a bullish 5.8 percent GDP growth for 2021 — but said it would be higher still if Democrats swept both chambers of Congress and the White House. “A blue wave would likely prompt us to upgrade our forecasts,” they said, because expected fiscal stimulus and investments in infrastructure, climate, health care and education would, in effect, cancel out the economic hit of higher taxes on big corporations and the rich.

“A hallmark of the Trump administration was rolling back regulations and decreasing corporate taxes, and people would argue that has, in fact, promoted growth,” said Dan North, senior economist at Euler Hermes North America. “Obviously, the Democratic argument is corporations should pay their fair share of taxes and regulations, particularly environmental regulations, need to be enhanced.”

North predicted that a Joe Biden administration backed by Democratic majorities in the House and the Senate would reverse the GOP tax cuts and either reinstate or strengthen regulations. Analyst estimates differ on the economic impact these changes would have over the long term, market observers say a much more immediate risk faced by Wall Street and Main Street alike is the teetering economic stability of a growing number of families and small businesses.

“Without a fifth stimulus coming in quick fashion, there’s some real pain coming to the parts of the economy that directly affect consumers,” Buchanan said.

With consumer spending the biggest driver of economic activity, experts say preserving, supplementing or replacing household income is paramount. “If you look at the macro data in terms of income, income has totally dropped off and now you’ve got people facing utility shutoffs [and] increasing incidents of hunger,” North said.

“As the virus lingers on, as economic damage lingers on… it’s really hard to put parameters around how much worse it can get,” Buchanan said.

If a gridlocked Congress can’t deliver more spending relief, “It’s hard to imagine a vibrant growth economy coming back to the U.S. anytime soon,” Buchanan added.