A Democratic “blue wave,” where the party takes control of both the White House and Congress, is becoming more likely, and that could juice the U.S. And global economy in early 2021, according to Goldman Sachs.
Goldman’s chief economist, Jan Hatzius, explored the possibility of a Biden blue wave in a note sent to clients on Monday. While acknowledging that a Democratic sweep would produce an increase in corporate taxes, Hatzius predicts this would be outweighed by the benefits of a stimulus package that would likely arrive shortly the January 20 presidential inauguration.
In a key passage of the note, Hatzius predicts such a package would be at least $2 trillion, and that it would be part of a larger spending agenda that would benefit the economy (emphasis mine):
All else equal, such a blue wave would likely prompt us to upgrade our forecasts. The reason is that it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the likely longer-term tax increases on corporations and upper-income earners.
Hatzius concludes that a blue wave would have “mixed” implications for U.S. Stock markets but that, overall, it “would likely result in substantially easier US fiscal policy, a reduced risk of renewed trade escalation, and a firmer global growth outlook.” He predicts these developments would particularly benefit cyclical sectors (such as luxury goods, appliances and other industries vulnerable to macroeconomic trends) as well as firms that pay most of their taxes outside of the U.S.
The optimistic note about a blue wave comes as analysts at other major banks suggest a Biden-led blowout could help stocks. In comments to Bloomberg, for instance, a strategist at Swissquote Bank SA said polls are pointing to a clean Biden win, and that this is reducing investor uncertainty.
Analysts are not political scientists, of course. But Hatzius’s note points to recent polls that suggest Biden has opened up a commanding lead over President Trump, while Democrats are in strong position to retake the U.S. Senate.
Meanwhile, betting sites like PredictIt, which let users place wagers on the outcome of November’s contest, show Biden as a clear favorite to win the Presidency.
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