Wall Street can relax, moderates have a mandate

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Yes, Democrats now have control of the Senate because of the vote to eliminate equality by Vice President Kamala Harris, but that is a thin majority. And they lost their seats in the elections, reducing their own majority there.

Investors hope this could lead to a compromise on a Covid-19 stimulus bill, though perhaps less than the $ 1.9 trillion package Biden promoted. And for those worried that a more decisive blue wave would lead Biden to adopt more progressive policies, they can breathe a little easier now.

The stimulus is likely to take precedence over tax increases, changes in health care policy and greater regulation of banks and large technology companies. In other words, the Elizabeth Warren / Bernie Sanders wing will have to wait.

“A $ 1.9 trillion stimulus package may not be easy to get past, but something will be done,” said James Ragan, director of wealth management research at DA Davidson.

“As for taxes, they could eventually get to the corporate side, but that will be on the way,” This is not the first work order and investors are reacting positively to this. “

Investors were preparing for a much bigger victory for Democrats, which could have given Biden the freedom to launch a much more progressive agenda. This seems unlikely now, and not just because of Covid-19: Experts say Democrats need to step carefully so they can keep control of Congress in the midterm 2022 elections.

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“The market is now priced lower than a blue wave in politics than before the election,” said Kent Insley, chief investment officer at Tiedemann Advisors.

“There are concerns that if Democrats make too aggressive changes, they could suffer and this would increase the risk of them not being re-elected. Moderate Democrats could seek to limit tax increases,” he added.

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Democrats may have to stop any efforts to impose tougher regulations on big banks. This could be good news for the shares of top financial firms.

“I don’t anticipate strong regulatory changes coming from Democrats,” said Steven Leslie, chief financial services analyst at The Economist Intelligence Unit. “The Biden administration will not want to restrict banks apart from police abuses, they have other priorities.”

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This view is shared by a former top Wall Street banker who briefly served in the Trump administration.

Gary Cohn, former Trump economic adviser, formerGoldman Sachs (GS) chief operating officer and currently vice president of IBM (IBM), argued that Washington moderators will exert more influence.
“Executive action will only lead the country so far. Our ability to do great things will be decided moderately in the Senate. The way forward is down the middle,” Cohn said. wrote in a tweet Friday.

The fact that Biden will have to compromise with Republicans could be a problem for the economy, even if investors encourage their desire to get over the aisle.

“Markets are subconsciously or unconsciously betting that the US fiscal package will be diminished by moderates,” Kit Juckes, a macro strategist at Societe Generale, wrote in a report. .

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