It’s Too Early to Feel at Ease
The dust has settled on the US election if nothing else, with Biden, the Democratic presidential candidate, securing 279 electoral votes to become the next president. The president-elect thus held two new records: first, to win the election at the grand old age of 77; second, to win the election with a record-breaking 75.55 million votes, beating Obama's record of 69.5 million votes.To get more news about WikiFX, you can visit wikifx.com official website.
When the initial ballot count gave Trump big leads, the US dollar rallied amid the board pressure on US stocks. However, the situation was reversed later, sparking a sharp rebound in stocks at the expense of the greenback. At first, worries about the pressures on stock markets, which would be the result of Bidens significant tax increase after his victory, prevailed financial market. But later, the fact that Republicans remained in a Senate majority boosted stock markets as it was expected that the Senate would not pass such a tax plan.
Nevertheless, there remain some concerns behind the bullish stock markets. The first is Trumps refusal to concede defeat. His campaign has filed lawsuits to prevent final certification of the election results. Second is the battle for Senate control. So far, the tally for the next Senate is 48 Republicans and 48 Democrats, which means Democrats will get a majority in the Senate as long as they win two more seats. Considering the 100 senators in total, if the election leads to a 50-50 party split in the Senate, the President of the Senate, who is also the Vice President of the country, will have a tie-breaking vote. Normally, the Vice President shall have no vote unless the Senate be equally divided. Thus the current Senate elections are in favor of the Democrats. But investors should keep a close eye on the results before feeling at ease.
A chief reason for Biden‘s success is the sharp left turn of his platform, which called for a substantial increase in taxes on high earners and a 100% increase in federal minimum wage from the current $7.25 to $15 an hour. Significant wage increases are bound to pose headaches for business owners and may result in stagflation, which will count heavily against the country’s economy in the long term. Such a tax increase, on the contrary, is expected to dramatically tackle the government deficits, which will put a premium on the dollar. Trumps tax cuts that were enacted after he took office boded well for US stocks at the expense of the greenback, dragging the currency down for a whole year despite the interest rate hike cycle at the time.
Therefore, from a macro point of view, US stocks are likely to see a long correction after the boom, while the dollar may rally on buying support after the correction. In conclusion, investors in the stock market should keep in mind that its too early to feel at ease about the current situation.