Nervous markets: could Biden tax hikes be on the cards?

As election creeps back into view amid COVID-19 crisis, expert begins to weigh up a Democrat victory

Nervous markets: could Biden tax hikes be on the cards?

The financial markets are getting nervous at the prospect of a new U.S. President as the contender keeps his powder dry and the incumbent inflames a worldwide health scare and Black Lives Matter debate.

The fall is fast approaching, when Republican President Donald Trump goes head to head with Democratic Party candidate Joe Biden. Biden, it seems, has laid low over the past several months, possibly to protect himself against his own gaffes but also because he likely realises the election could turn into a referendum on Trump himself.

Biden has his own potential issues – his history of Senate votes, some of which don’t stand up to modern-day scrutiny, and the fact he has lurched further to the left in an effort to rally his party. Eric Lascelles, chief economist for RBC Global Asset Management, believes this is an unconventional pivot, as normally politicians shift toward the centre in the lead-up to the general election. For the moment, he said betting markets believe Biden has the upper hand, with a 57% chance of victory.

“While there tends to be a huge incumbency advantage and the president’s base has been rock-solid over the past four years, the administration’s handling of COVID-19 may have alienated him with vulnerable seniors. His stance on recent anti-racism protests has put him on the opposite side of the issue to the great majority of Americans. Conversely, the Democrat base has apparently enjoyed a significant influx of funds and volunteers in recent weeks.”

With four and half months still to run until the election, there is time for a successful economic recovery, which would favour Trump, while a “double-dip” would help Biden.

Lascelles said that COVID-19 has been so politicized in the U.S. that being cautious about COVID-19 is increasingly viewed as a Democratic attribute, while pushing to maximize short-term economic output is viewed as a Republican one.

“One fascinating poll revealed that only 26% of people who regularly wear masks are Trump supporters, while 83% of those who generally don’t wear masks support the President. For that matter, Trump went into the 2016 election with no better than a 40% chance of winning, and nevertheless emerged victorious. The race isn’t over yet. But suffice it to say that current tracking points toward the prospect of a Democratic president, and further highlights the real risk that the Senate could also flip toward the Democrats.

“The House of Representatives is already firmly in Democrat hands. Whether a Democratic sweep would represent a cause for celebration or for consternation is a matter of personal political stripe. But there is reason to think that financial markets might be nervous about the prospect of tax hikes under an empowered Democratic administration. This may become a more relevant consideration for financial markets as the election approaches.”