[Good Morning Stock Market] Will Global Interest Rates Fall Further... Market Depends on US Presidential Election

Former Vice President Joe Biden, the Democratic presidential candidate in the United States (Photo by AP Yonhap News)

[Asia Economy Reporter Kum Boryeong] Investors are focusing on whether the historically low global interest rates can fall even further. Alongside this, there is growing curiosity among investors about whether former Vice President Joe Biden’s tax policies would pose a negative factor for the stock market if he wins the U.S. presidential election this year.

◆ Yoon Yeosam, Meritz Securities Researcher = Until mid-July, during the period when new COVID-19 cases in the U.S. were rising, it was confirmed that consumption and employment-related indicators, which are sensitive to the disease, showed a slowdown in improvement. In fact, weekly surveys of consumer sentiment and retail sales indicators showed a deceleration in growth, and new unemployment claims increased compared to the previous week, heightening concerns. Therefore, there was an argument that the pace of improvement could become more gradual, urging caution in risk asset investments.

The still uncontrollable epidemic and economic uncertainty, combined with an accommodative monetary policy stance and strong bond demand conditions, support the argument that interest rates could fall further. However, approaching this contrarily, bond purchases are becoming increasingly burdensome, and historically, speculative positions entering net buying territory have often signaled the bottom of interest rates. Since August, the rate of increase in new COVID-19 cases in the U.S. has begun to slow, and positive news related to vaccines is increasing. If COVID-19 has played a key role in the direction of the bond market this year, although the absolute numbers are higher than the first week of June, its influence as a basis for further market rate declines should be considered diminished.

The balance of conflicting factors for interest rates?'falling vs. rising'?ultimately depends on the actual degree of inflation. Since inflation serves as a standard for evaluating real purchasing power, under normal economic conditions, it also acts as a floor for interest rates; interest rates lower than inflation imply a lack of investment appeal as a financial product.

◆ Lim Hyeyoon, KTB Investment & Securities Researcher = The majority view is that Biden’s corporate tax hike proposal (from 21% to 28%) will act as a burden on the stock market. This is because the TCJA (Tax Cuts and Jobs Act), which included corporate tax cuts, contributed to stock price increases. I agree that if the corporate tax increase materializes, stock market volatility could rise. However, from a mid- to long-term perspective, securing an appropriate level of tax revenue to strengthen fiscal spending capacity may be reasonable for sustaining U.S. economic growth and maintaining dollar hegemony.

Regarding domestic growth, the policy direction of expanding fiscal spending and maintaining a monetary easing stance does not differ significantly. However, while the Trump administration believed that creating a business-friendly environment through tax cuts would increase investment and employment, Biden argues that the Trump tax cuts caused more side effects (such as rising stock prices of some large corporations and weakening of the manufacturing base) than their original purpose (expanding investment and creating quality jobs). Therefore, Biden aims to increase tax revenue and strengthen the government’s role based on that.

In summary, the repeal or weakening of Trump’s tax cuts could lead to reduced incentives for multinational corporations to repatriate overseas retained earnings and decrease share buybacks, resulting in stock price declines. However, if this ensures sustained tax revenue and expanded fiscal spending, leading to economic growth and enhanced corporate competitiveness, it could act as a factor that increases the attractiveness of the U.S. economy and companies in the mid- to long-term.

This content was produced with the assistance of AI translation services.