With the US Presidential election just around the corner, markets are poised to experience increased volatility. Saxo Bank’s chief economist, Steen Jakobsen, stated that both Trump and Biden would spend huge amounts of money and lean on the Fed for supporting easy financing conditions and neither of them would seek deep reform. Regardless of who wins the presidential election, the event will bring increased volatility and risk. Take advantage of Overbond’s COBI-Pricing LIVE and Liquidity Scoring model that assesses risk for each individual bond in order to stay on top of changes in bond prices in the lead up to the election.
Source: Business Insider
President Donald Trump and Democrat nominee Joe Biden are the “diametric opposites” of what the US needs, Steen Jakobsen, Saxo Bank’s chief economist said on Thursday.
In the bank’s fourth-quarter outlook, Jakobsen said whoever wins the presidential elections will not completely overhaul economic direction, but the event will bring increased volatility and risk.
“Both would spend huge amounts of money, both would lean on the Fed for supporting easy financing conditions and neither of them would seek deep reform,” Jakobsen said. “So to a large extent, the two Presidential candidates are the diametric opposite of what the US needs.”
Saxo Bank outlined three outcomes between October and the presidential inauguration on January 20, 2021:
A contested election, to which the bank attaches a 40% probability, could see a spike in volatility, a broad equities sell-off from uncertainty, a weaker US dollar, and stronger gold.
A clean sweep by Biden, with an equal 40% probability, could also bring a sell-off in equities (especially in technology stocks), a rally in green-energy stocks, and higher interest rates as both houses of Congress would hold the “power of the purse.”
A Trump win, with a 20% probability, would see oil and gas stocks jump, while increased US-China tensions would lead to a sell-off in Chinese tech stocks, and little ability to approve fiscal stimulus due to a split in both houses.
Despite friction between the United States and China, the US equity market has fared well in the four years under Trump’s administration, Peter Garnry, head of equity strategy at Saxo, said.
For that reason, market players are used to his policies and the companies have largely benefited from lower taxes and less government oversight. Further frictions with China could be factored in.
But Biden winning could be a headwind for equities as he has proposed to hike the statutory tax rate on corporate income and US companies’ foreign income.
Garnry said Biden’s tax changes would create a 9% drag on S&P 500 earnings. “These would hit communication services, healthcare and information technology the hardest, as those companies have the lowest tax rates in general and are big users of intangible assets,” he said. “The open question is whether Biden dares implement the tax changes during a weak economic backdrop.”