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Investors are hoping this could lead to a compromise on a Covid-19 stimulus bill, albeit perhaps smaller than the $ 1.9 trillion package Biden pushed. And for those who feared that a more decisive blue wave would lead Biden to adopt more progressive policies, they can breathe a little easier now.
The stimulus is likely to take priority over tax hikes, changes in health care policy and more regulation of banks and big tech companies. In other words, the Elizabeth Warren / Bernie Sanders wing of the party will have to wait their turn.
“A $ 1.9 trillion stimulus package may not be easy to adopt, but something will be done,” said James Ragan, director of wealth management research at DA Davidson.
“As for taxes, they could possibly increase on the corporate side, but that will be later,” This is not the first order of the day and investors are reacting positively to it. “
Investors were bracing for a much bigger Democrats victory, which could have given Biden leeway to launch a much more progressive agenda. It seems unlikely now, and not just because of Covid-19: Experts say Democrats need to be cautious to maintain control of Congress in the 2022 midterm election.
“The market is now pricing in less of a blue wave when it comes to politics than it was before the election,” said Kent Insley, chief investment officer of Tiedemann Advisors.
“There are fears that if Democrats push for overly aggressive changes, they could suffer, which would increase the risk that they will not be re-elected. Moderate Democrats could seek to limit tax increases,” he said. he adds.
Calls for tighter regulation may fall on deaf ears
Democrats may also have to suspend efforts to impose stricter regulations on big banks. This could be good news for stocks of major financial companies.
“I don’t foresee any strong regulatory changes coming from the Democrats,” said Steven Leslie, senior financial services analyst The Economist Intelligence Unit. “The Biden administration won’t want to restrict banks any further other than police abuse, they have other priorities.”
This view is shared by a former Wall Street banker who briefly served in the Trump administration.
The fact that Biden will have to compromise with Republicans could be a problem for the economy, even as investors applaud his drive to reach the other side of the aisle.
“The markets are, unconsciously or not, betting that the US budget package will be watered down by the moderates,” wrote Kit Juckes, macro strategist at Societe Generale, in a report, “who remain powerful thanks to the thinness of the slice. Democrats hold Congress. ”
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