Investing.com – In the first U.S. presidential debate, held on Thursday night, June 27, incumbent Democratic President Joe Biden failed to convince the audience that he has the ability to continue leading the world’s largest economy for a second term. Quite the opposite. The encounter was more positive for Republican Donald Trump, who is seeking a second non-consecutive term in the November 5 election.
An opinion poll published by the American network CNN showed that 67% of the public believed that Donald Trump performed better in the debate, compared to 33% who gave the victory to Joe Biden. Also, 57% of the people consulted indicated that they do not trust Biden’s ability to lead the country, compared to 44% who do not trust Trump. Before the debate, the percentage was 55% – 47%, respectively.
With these snapshots of the presidential race, analysts at investment bank UBS anticipate a volatile environment in the markets, as well as reactions to possible scenarios that could arise from the US electoral process, taking into account also the outcome in the legislative branch.
“The composition of Congress is a key element when assessing the prospects for implementing any policy. This is especially true for fiscal and social policy, where the role of Congress cannot be ignored,” they explained in an analytical note.
What if Joe Biden wins?
“The Biden administration will try to raise taxes on the wealthiest Americans. However, the ability to do so will likely be limited by the Republican Senate, which brings us back to a compromise on taxes.”
- With a Democratic majority in Congress
Analysts have warned that a Biden presidential victory and Democrats gaining a majority in Congress may be the most negative outcome for stock markets because there will be a greater possibility of a corporate tax increase.
“The expiration of some of the 2017 personal tax cuts may act as a slight drag on consumer spending. They said regulatory pressures may increase in some industries, but overall this will be an extension of the status quo.”
UBS expects that if Biden wins but Congress is divided, we could expect more limited policy changes and a more muted impact on financial markets.
“The Biden administration will have to rely heavily on executive action and regulatory oversight,” they said.
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What would happen if Donald Trump won?
Trump has repeatedly expressed support for tariffs, viewing them as opportunities to extract concessions from both adversaries and allies. Based on the actions of his first administration, we assume that higher tariffs will be implemented. “While their imposition will increase Treasury revenues, it comes at the cost of renewed inflationary pressures and geopolitical frictions,” they noted.
- With a Republican majority in Congress
Analysts at UBS believe that the 2017 tax cuts are likely to be extended, with the possibility of an additional cut in corporate tax rates.
They explained that “funding for these initiatives may come through reducing support for the green energy provisions in the inflation reduction law.”
In their view, UBS expects that equity markets are likely to welcome tax cuts and regulatory easing, but this would be partly offset by concerns about the costs and inflationary effects of higher tariffs and trade wars.
“Interest rates and the dollar are likely to rise initially. Financial sectors emerge as major potential beneficiaries in this scenario due to easing of regulatory restrictions,” they said.
Strategists warned that such a scenario would mean impeding major changes in fiscal policy, as well as increased tariffs and easing of regulatory restrictions.
They explained, “These two forces would have a mixed impact on stock markets. The dollar and interest rates are likely to rise moderately. The financial sector is likely to be the main beneficiary of easing regulatory restrictions.”
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