[Good Morning Stock Market] Conservative Approach Needed Until US Presidential Election

US Republican Senate Focused on Supreme Court Nominee... Supplemental Budget Execution Unlikely for Now
Possibility of Supplemental Budget Execution After Presidential Election... Infrastructure Stocks Expected to Benefit with Biden Administration Launch

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] There are claims that the market should be approached conservatively until the results of the U.S. presidential election are confirmed. This is because expectations for a supplementary budget have declined as President Donald Trump's approval ratings gradually fall. However, if Democratic presidential candidate Joe Biden is elected, there is a stance to implement the supplementary budget immediately afterward, so it is analyzed that expectations for the supplementary budget could rise again after the election.

◆ Sungkeun Kim, Researcher at Korea Investment & Securities = Contrary to concerns after the holiday, the KOSPI continued its upward trend. The S&P 500 index, which had been sluggish during the holiday, also rebounded strongly. There are two driving forces behind this. The possibility of President Trump contesting the election results, which the market is most wary of, has decreased, and expectations for the U.S. supplementary budget are reviving. Nevertheless, it is still necessary to approach the market conservatively until the election results are certain. Although the possibility of contesting has decreased, expectations for the U.S. supplementary budget need to be lowered.

Expectations for the supplementary budget fell after the death of Supreme Court Justice Ruth Bader Ginsburg but have been rising again following President Trump's COVID-19 diagnosis. The logic is that with Trump's diagnosis raising awareness of the spread of COVID-19, the Republican Party might view the supplementary budget more favorably. President Trump also urged for an agreement on the supplementary budget through Twitter.

However, there are doubts about such expectations. For the supplementary budget to pass, support from the Republican-controlled Senate is essential, but there are no signs that the Senate is willing to change its stance. Even if House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin reach an agreement, it is meaningless if Republican senators do not agree. Last week, the House passed a supplementary budget worth $2.2 trillion (approximately 2,555.3 trillion KRW), but Senate Majority Leader Mitch McConnell expressed a negative stance, saying the size is too large and the gap between the two parties remains significant.

In fact, looking at the contents of the Democratic supplementary budget, the $600 weekly unemployment benefits and large-scale support for state and local governments, which the Republicans have opposed for months, remain intact. The Democrats also still oppose the provision protecting companies from lawsuits emphasized by Mnuchin and the Republicans. In effect, the gap between the two parties has not changed significantly.

Moreover, the Republicans' focus remains on the Supreme Court nomination, so the supplementary budget is expected to be deprioritized. However, the supplementary budget can be expected after the election. The probability of Biden's victory and the Democrats gaining control of the Senate are increasing. Biden has also stated that he will implement the supplementary budget immediately after taking office.

Since expectations for the supplementary budget may decline again, the market should be approached conservatively until the election results are confirmed. However, it is advantageous to pay attention to eco-friendly and infrastructure sectors. The likelihood of the Biden administration becoming a reality has increased. Among Biden's pledges, eco-friendly investment has the largest share, and it is highly likely that infrastructure investment, which has a greater economic stimulus effect than tax increases, will be implemented first after taking office.

◆ Sangyoung Seo, Researcher at Kiwoom Securities = The U.S. stock market widened losses early in the session as Federal Reserve Chairman Jerome Powell expressed concerns about the economic recovery. Large technology stocks, which face the possibility of strengthened antitrust regulations, led the decline. However, after House Speaker Nancy Pelosi insisted that immediate stimulus is necessary, the market successfully turned to gains, mainly in small and mid-cap stocks. Then, just before the close, the market sharply reversed to a decline after President Trump ordered a halt to stimulus negotiations until after the election.

Chairman Powell stated that the pace of the U.S. economic recovery was faster than expected but the outlook remains very uncertain. He also mentioned that if Fed policy and government policy proceed simultaneously, the economic recovery would be faster, advocating for expanded fiscal policy. Overall, Powell's remarks were not much different from last month's Federal Open Market Committee (FOMC) meeting, which showed caution toward aggressive stimulus, fueling the intraday index decline. Amid this, Pelosi said Powell's warning was clear and insisted on immediate stimulus, leading to a market rebound.

However, ahead of negotiations between Pelosi and Mnuchin, the market sharply declined after President Trump ordered a halt to additional stimulus talks. Trump rejected the Democrats' stimulus plan and announced that he would pass a large-scale stimulus immediately after winning the election. Since the House, which controls the government budget, is likely to be won by the Democrats, the likelihood of this statement being realized is low. As a result, following the Fed's caution on additional liquidity and the government's stimulus delay, the liquidity-driven market phase was brought to an end, causing a significant drop.

Meanwhile, large technology stocks continued to decline on news that the House Antitrust Subcommittee plans to recommend antitrust measures including the breakup of large tech companies. The plan also includes prohibiting large tech companies from entering other business areas. Google would be required to split YouTube, Facebook Instagram, Amazon would be banned from selling its own products, and Apple would be prohibited from offering its own applications (apps). Some lawmakers argued that sweeping changes could lead to excessive regulation and unintended economic consequences. The related report was released after the market close, and large tech stocks continued to fall in after-hours trading.

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