Investors hope this could lead to a compromise on a Covid-19 stimulus bill, though perhaps smaller than the $ 1.9 billion package Biden argued. And for those who are worried that a more decisive blue wave Biden will lead to more progressive policies, they can now breathe a little easier.
Stimulus is likely to take precedence over tax increases, changes in healthcare policies and more regulation of banks and large technology companies. In other words, the party’s Elizabeth Warren / Bernie Sanders wing will have to wait their turn.
“A $ 1.9 billion stimulus package may not be easy to pass up, but something will be done,” said James Ragan, director of wealth management research at DA Davidson.
“As far as taxes are concerned, they may eventually increase on the corporate side, but that will be out of the way,” this is not the first case, and investors are responding positively. “
Investors strived for a much bigger victory for Democrats, giving Biden the chance to launch a much more progressive agenda. That now seems unlikely, and not just because of Covid-19: experts say Democrats need to tread carefully so that they retain control of Congress in the 2022 midterm elections.
“The market is now pricing less than a blue wave than before the election,” said Kent Insley, chief investment officer at Tiedemann Advisors.
“There are concerns that Democrats may continue to change too aggressively, and that this will increase the risk of them not being re-elected. Moderate Democrats could limit tax increases,” he added.
Calls for stricter regulations can fall on deaf ears
Democrats may also have to halt any attempt to enforce stricter regulations on big banks. This could be good news for stocks in the best financial firms.
“I do not foresee any powerful regulatory changes coming from the Democrats,” said Steven Leslie, chief financial services analyst at The Economist Intelligence Unit. “The Biden government is not going to want to restrict the banks beyond abusing police. They have other priorities.”
The view is shared by a former Wall Street banker who briefly served in the Trump administration.
The fact that Biden will have to compromise with Republicans could be a problem for the economy, though investors’ willingness to rejoice across the aisle.
“The markets are, subconsciously or not, betting that the US fiscal package will be watered down by moderates,” wrote Kit Juckes, macro strategist at Societe Generale, in a report, “which remains strong thanks to the wafer thinness. of Democrats’ possession over Congress. ‘