U.S. Elections:The 3 Possible Scenarios According to the Analysts

Specialists envision three scenarios after the November 3 elections: The most probable; the conservative; and the most chaotic.

A few days before the elections on November 3 in the United States, the markets see three possible results that the elections will leave and the consequences they would have on the politics and economy of the most powerful country in the world.

Although the focus is on whether the Democratic candidate, Joe Biden, will be able to take over the White House or whether Donald Trump will remain its tenant for four more years, 11 state governors, 34 senators and the entire House of Representatives will also be elected. .

According to an analysis that Natixis gave to Latino media this week, these are the three scenarios that the markets envision and their consequences.

Scenario 1. A "blue wave"

In this, Joe Biden wins the presidency of the United States and the Democratic party maintains the majority in the House of Representatives and conquers that of the Senate. This scenario is the most plausible for investors, according to the latest polls, which give Biden a wide popular vote advantage. But in the presidential elections of the neighbor to the north, what counts are the votes of the Electoral College. We explain how this system works here:

If the Democrats take the "full car," they will have two priorities to move forward: A massive economic stimulus package to try to pull the US out of the economic crisis; and an increase in corporate taxes to finance all that spending .

“At this time, it seems unlikely that an agreement (on the economic package) will be reached before the elections, so a possible blue wave implies a longer wait, but a much larger fiscal package. In fact, Biden and the Democrats are talking about $ 2.0-2.5 trillion (trillion) in additional stimulus, and another $ 3 trillion in spending on infrastructure, healthcare, education and climate in the next few years, ”says Esty Dwek. , Head of Global Macro Strategy at Natixis IM.

All of these stimulus measures will further widen the US fiscal deficit, but given the size of the crisis, it is not a cause for concern at the moment for most analysts. But what causes more concern to markets is that Biden has already stated that he intends to increase the corporate tax rate from 21% to 28% (to half the level of tax cut before Trump), with a minimum tax rate. 15%, and raise taxes on foreign income.

Natixis indicates that these measures are likely to reduce the earnings of the S & P500 by 9-10%.

Expectations of a more traditional and less impulsive president would be welcome, but questions about policy and taxes will persist. Growth prospects for 2021 will see momentum and the 'reopening of trade' would pick up speed, ”adds Dwek.

Scenario 2. The status quo is maintained

The other possibility is that everything stays more or less the same; that is to say, that Trump wins re-election, Republicans retain the majority in the Senate and Democrats continue to control the House of Representatives.

This would mean that the political stalemate will continue. " Markets may be concerned about fiscal stimulus, but we would probably get to see the phase 4 package this year , albeit on the scale currently being traded, between $ 1.5 and $ 1.8 trillion," says Natixis.

There is another variant of this scenario, that Biden wins the presidency, but the Republicans keep the Senate as their bastion. “ In this scenario, the Senate would block the Democrats' biggest spending plans, although a fiscal package would be expected . It would also likely be a type of investment in infrastructure, since this issue has obtained partisan support ”, he adds.

Scenario 3. Total polarization

This would be the worst possibility seen by the markets: Trump is president for four more years, but the Democrats sweep Congress, which would lead to a total polarization in political matters.

Control of the Senate and House would give Democrats the power to block almost all of Trump's policies and establishing a deadlock and vetoes would go a long way with many executive orders from Trump.

While markets consider the “blue wave” as the most likely scenario, the other possibilities cannot be ruled out. After all, it would not be the first time that the electoral results in the United States have surprised everyone.

Article Credit: Alto Nivel