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What financial markets should expect from a Biden presidency

Former Vice President Joe Biden, 2020 Democratic presidential candidate, speaks during a news conference in Wilmington, Delaware, U.S., on Thursday, March 12, 2020. Biden sought to deliver an antidote to President Donald Trump's response to the coronavirus outbreak on Thursday, unveiling a new plan that shows how he would fight the spread of the virus and urging the administration to use it. Photographer: Ryan Collerd/Bloomberg
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With the 2020 presidential election about four months away, the market expects "more of the same" if President Trump wins re-election, but depending on the outcome of Congressional races, a Biden presidency could go many ways.

If Joe Biden is elected and Democrats take the Senate and remain in power in the House of Representatives, Vincent Deluard, global macro strategist at StoneX, says, “brace for a weaker U.S. dollar, higher global growth, reflation, and the outperformance of emerging markets, like in 2009-2010,” he said. If the Democrats take Congress and Republican Trump is re-elected, that scenario “has historically been associated with mediocre market returns.”

Don McArthur, senior investment strategist and director of equity research at Commerce Trust Company, noted, “If Biden wins but Congress remains divided, from a high level, it would be difficult to get major legislation passed."

Major tax increases that Biden has proposed probably fail, but, he expects "more regulation through appointments to agencies and executive orders. We may see increases in regulation for the financial markets, as well as the environment. It is also likely that an infrastructure spending bill gets passed.”

If the Democrats sweep, "we could see an infrastructure spending bill pass. Foreign policy would likely remain tough on China but perhaps be more predictable,” he said. “Finally, we may see more regulation on financial markets and environmental concerns.”

The program faces big challenges, including the coronavirus pandemic which could deplete the program’s $3-trillion trust fund as early as 2028.
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Also possible are a rollback of some of the 2017 tax cuts, especially the corporate tax rate, which he sees rising to 28% from 21%, and a tax hike for those earning more than $400,000 a year, McArthur said.

"Additionally, [Biden] has proposed raising long-term capital gains and the dividend tax rates to the ordinary income rate for higher wage earners,” he said. “Biden also supports repeal of existing gift/estate tax guidelines that would eliminate a step-up in income tax basis at death, which could change the way investors plan to transfer wealth to the next generation. However, many experts note that negotiation on aspects of his proposals will be necessary to get a bill passed in Congress.”

McArthur noted that Biden would like to spend more on healthcare, expand the Affordable Care Act and offer a public health insurance option.

If Trump wins re-election, McArthur said, expect “more of the same.”

“We would expect continued strains on our relationship with China with more geopolitical tension. De-regulation likely continues broadly,” McArthur said. “It does appear an infrastructure spending bill could get passed with bi-partisan support.”

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