Mayor Focused on US Election Scene... "Worst Case Scenario is Biden's Victory and Republican Senate Control"

Impact of Additional Stimulus Measures Hinges on Election Results Over 3 Days... Wall Street's Reaction in Focus

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The U.S. election held amid the novel coronavirus disease (COVID-19) crisis is the focal point of the financial market. This is because the results of the presidential and Senate elections inevitably influence political decisions that will determine the scale and timing of additional economic stimulus bills to respond to the economic recession. The worst-case scenario is the election of Democratic presidential candidate Joe Biden and Republican control of the Senate.

On the 3rd (local time), The New York Times (NYT) presented four scenarios, stating that the outlook for additional U.S. economic stimulus bills depending on the presidential election results will affect Wall Street's reaction.

The scenario most desired by the market is a 'Blue Wave,' where the Democrats control the White House and both the House and Senate. In this case, the scale of spending for economic stimulus would increase, and the bill would pass through Congress without significant political conflict, leading to an earlier implementation. NYT predicted that under such circumstances, the New York Stock Exchange would rise on expectations of economic recovery.

However, if the Blue Wave materializes, the possibility of passing bills that strengthen taxes and regulations also increases. Biden has pledged to raise corporate taxes, among other things. Some experts analyzed that a 'Light Blue Wave,' where the Democrats become the majority through a narrow victory rather than an overwhelming win in the Senate elections, might be better for investors. This is because the Republicans would be able to provide appropriate checks and balances.

The worst-case scenario is Biden winning the presidency while the Republicans maintain control of the Senate as they currently do. In this case, foreign media report that it would be difficult for the financial market, which is expecting additional stimulus measures, to gain momentum, potentially negatively impacting economic recovery. Although the White House and Democrats reached some agreement on additional stimulus bills before the election, the Republicans delayed the passage until after the election considering this political situation, so if Biden becomes president, they may obstruct the stimulus measures.

If President Donald Trump is re-elected, it is highly likely that the Republicans will maintain their majority in the Senate and the Democrats will keep their advantage in the House, as is currently the case. In this scenario, NYT predicted that the current deadlock over additional stimulus would continue, and expectations for large-scale economic stimulus measures would quickly fade. However, since it is certain that there will be no tax increases like those proposed by Biden, there are some positive factors for the market.

Scenarios where the election results are not immediately confirmed must also be considered. Even if Biden initially gains the lead in the presidential election, President Trump may challenge the legality of mail-in ballots and initiate lawsuits, and some Senate election results, such as in Georgia, may take time to confirm, prolonging confusion. In such cases, NYT forecasted that the timing of additional stimulus would be delayed, market uncertainty would increase, and the stock market could face significant volatility.

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