Global Stock Markets Catching Breath... "Beware of US-Origin Uncertainties at Year-End and New Year"

Year-End Struggles Expected Over Stimulus Bill Passage
Early Year Focus on Georgia Election and Democratic Control of Congress

Donald Trump, President of the United States, is speaking at the COVID-19 Task Force (TF) press briefing held at the White House on the 17th (local time). [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the upward trend of domestic and international stock markets has somewhat slowed compared to last month, there are forecasts that market volatility could increase due to uncertainties arising from political issues such as the US economic stimulus package at the turn of the year and the Georgia Senate runoff election.

Stock Market Hits New Highs but Gains Narrow

On the 27th, IBK Securities advised caution regarding the potential expansion of stock market volatility against this backdrop. In fact, although the KOSPI occasionally hit new record highs, surpassing 2800 for the first time ever on the 24th, the rate of increase has significantly decreased compared to last month. This is partly due to the growing burden from the previous upward trend, but also because the influence of factors driving the stock market rally has diminished or been offset by unexpected developments.

The COVID-19 vaccine is a representative example. Following Pfizer, Moderna's vaccine has begun to be used and the vaccination areas are expanding, but it is analyzed that expectations had already been priced into the market. There are also variables that weaken the expectation of economic normalization through vaccines. In the UK, where vaccinations started earlier, the number of new COVID-19 cases has reached an all-time high. Notably, half of these cases are reported to be infected with a variant virus. Since it is uncertain whether the distributed vaccines can block the variant virus, the vaccine effect may be offset in the stock market.

However, the global stock market correction due to concerns over the COVID-19 variant did not continue as a trend. This is because large-scale liquidity and expectations for stimulus measures supported the market floor. Earlier, on the 21st, the US Congress passed parts of the 5th fiscal stimulus package with few disagreements after seven months of discussions. Among these, President Donald Trump demanded increasing the cash payment from $600 to $2,000 per person ($4,000 per couple) and excluding less urgent items such as support for cultural facilities. In response, the Democratic Party plans to immediately accept the demand for increased cash payments and propose a new stimulus plan.

Uncertainty Rises Over US Economic Stimulus Package

There are concerns that this very process could become an uncertainty shaking investor sentiment. Soeun Ahn, a researcher at IBK Investment & Securities, said, "President Trump's demand for an increase in the stimulus package and the Democrats' immediate acceptance are positive, but it is uncertain whether both sides' will will materialize into the passage of a larger stimulus package in the near future. If Congress proposes a new stimulus plan according to the president's demands instead of holding a vote to override the president's veto, the repeated conflicts over the size and content of the stimulus package over the past seven months could recur."

Republican lawmakers are already opposing it due to concerns over increasing the fiscal deficit. Due to this discord, unemployment benefits related to COVID-19 are set to end at the end of this month, and the federal government faces a shutdown crisis starting from the 29th. The Brookings Institution analyzed that about 10 million people will be unable to receive unemployment benefits after the 26th, and an additional 4 million people may lose benefits in the coming weeks.

If the new stimulus package does not proceed quickly at the level the market expects, concerns about economic recession could grow again due to policy gaps amid the resurgence of COVID-19. Researcher Ahn explained, "Since regional lockdowns resumed due to the spread of COVID-19, the US unemployment situation has worsened again. The recovery of household consumption sentiment has also slowed, and it is worrisome that support policies such as additional unemployment benefits will end without a stimulus package."

Whether Democrats Secure Majority in US 'Blue Wave' Also a Variable

Besides the economic stimulus package, uncertainties related to US policies remain. The Georgia runoff election scheduled for January 5 next year is one such factor. Although Joe Biden's inauguration as president on January 20 is a foregone conclusion, the policy momentum could vary depending on whether the Democratic Party secures control of both the Senate and the House (the "Blue Wave"). The Democrats already hold the majority in the House following the November 3 election, but they are still two seats short in the Senate.

Researcher Ahn said, "The Blue Wave scenario cannot be said to be entirely good or bad for the stock market, and considering Biden's key pledges and the policy stances of both parties, there are mixed pros and cons. Aggressive policies such as tax increases could be easily pushed under a Blue Wave, which is burdensome, but the immediate implementation of large-scale fiscal policies to respond to COVID-19 under a Blue Wave is positive."

According to recent polls, Democratic candidates are leading in both Georgia Senate seats. If the Democrats win, both parties would hold 50 seats each, allowing the vice president to cast the deciding vote and thus enabling the Democrats to regain the Senate majority. However, since the support rate gap between candidates is not large and the race has been consistently competitive, it is difficult to predict the outcome. Researcher Ahn forecasted, "As expectations for the Biden administration's stimulus package are high, uncertainties related to the vote could increase market volatility."

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