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On January 20, the new president of the United States will be sworn in for a four-year term although Donald Trump has not yet accepted defeat. The split Congress could make it difficult for president Biden to finance the reforms through taxes. This is negative for the economy but does not have to be negative for the stock market, Lars Henriksson, strategist at Handelsbanken, reports.

Key quotes

“In the short-term, the election result is threatening the stimulus package that, according to most analysts, is absolutely necessary for the economic recovery to continue. Right now, there is no indication that President Trump will be cooperative; therefore, it may be difficult to reach a decision on a new package before the end of January. This could have a negative effect on the financial markets.”

“Although a split congress may mean even worse public finances in the long run, it would likely be interpreted as positive by the stock market, as increased corporate taxes constitute a significant part of the planned tax reform.”

“What may be negative for the economy in the long run does not have to be negative for the stock market, at least for the short-term. As with so many major events in the past, the market reaction has been positive since the election results, this time largely thanks to extremely expansionary monetary policies that will probably last for at least another couple of years.”

“The financial markets have already shifted focus to the continued development of the pandemic and the positive news about a COVID-19 vaccine and when it could be launched. In addition, the market expects opportunities for even greater stimulus from the US Federal Reserve, as compensation for the small fiscal stimulus.”

 

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