Its favorite presidential candidate, Donald Trump, in bad shape, a probable cohabitation which will reduce the chances of a recovery, an economy weakened by the pandemic: everything should be bad for the New York Stock Exchange and yet it is celebrating.
While Wall Street feared more than anything the uncertainty of disputed election results, the Dow Jones index is up almost 7% on the week and the Nasdaq, which carries the big names in tech, by almost 9%.
So what are the paradoxes of Wall Street’s petulant health?
Contrary to what Donald Trump promised in case of victory for his Democratic opponent, so far the stock market has not collapsed while two days after the election Joe Biden seems in pole position to win.
“If he wins,” Mr. Trump predicted during the last presidential debate, referring to Joe Biden, “your 401k will go to hell!”, Referring to the name of retirement savings in the United States.
The Republican candidate, who has continued to brandish the performance of Wall Street as a reflection of his success, promised a sad fate to these pension accounts, invested in the stock market by some 43% of Americans. Since coming to power in 2017, the Dow Jones has climbed by a third and the Nasdaq has nearly doubled.
With his corporate tax cuts and deregulation, Donald Trump’s policies have been very favorable to Wall Street.
He was the preferred candidate for investors: 54% of them (compared to 42% for Joe Biden) believed the billionaire was better placed to help the stock market advance, according to a Fortune poll in October.
Traditionally, the prospect of a Democrat in the White House has not thrilled markets, which then expect more expensive social policy and tax increases.
But for now, Wall Street doesn’t seem to care, first heaving a sigh of relief at the assumption of clear results faster than feared.
The Stock Exchange, which operates in anticipation, therefore welcomes the possible arrival of Joe Biden at the White House, especially if his program is constrained by a cohabitation with a Senate which is likely to remain opposed to him. .
“This means that we will be in a political impasse, which the market sees in a positive way”, judge Peter Cardillo, chief analyst of Spartan Capital.
The first victim will be the economic recovery. In endless and fruitless negotiations just before the poll, Democrats failed to convince Republicans to pass their $ 2.2 trillion additional aid plan to Americans and businesses to deal with the impact economic impact of Covid-19.
While a certain stimulus, which leads to more consumption and therefore a better economy, would be appreciated on Wall Street, too much stimulus dislikes it. In the long term, more budgetary expenditure is indeed synonymous with more taxes to finance them.
For Patrick O’Hare of Briefing.com, in such a political deadlock scenario, “the market believes that if former Vice President Biden wins, there will be no adverse change in tax policy.” .
The absence of a democratic “blue wave” means that it will be much more difficult for Mr. Biden to pass his tax hikes on big companies, big American fortunes and on stock market earnings.
Since 1944, the S&P 500 has risen 8.6 percent annually when a president faced a divided Congress, Sam Stovall calculated at CFRA. This is less good than when the president and the Congress are on the same side (+ 10.6%), but better than when the Congress as a whole is blocking the government (+ 7.4%).
The dichotomy remains striking between the insolent health of stock market indices and the impact of the Covid-19 epidemic on the world’s largest economy, with its share of layoffs and bankruptcies.
The causes of concern have not disappeared: the pandemic continues to progress with more than 120,000 cases of daily contamination in the United States on Thursday, Europe is confined, the recovery is running out of steam.
Yet investors continue to favor Wall Street. The massive amounts of capital that the US Central Bank (Fed) poured into the financial system pushed rates down to an all-time low. Investors are therefore encouraged to look for returns elsewhere than on bonds, by betting on riskier assets like stocks.
In the event of economic collapse, Wall Street also remains confident: whoever the future president is, “a lot of money will be spent, whether in the form of an economic stimulus or investment in infrastructure”, assures JJ Kinahan by TD Ameritrade.