No matter who wins the presidential election, the U.S. economy is likely to stay “on the path to recovery” and help reinvigorate a stock-market rally that faded a few months ago.
Heading into the election day, polls pointed to a Biden victory and Democrats in prime position to seize control of the Senate. If a so-called “blue wave” develops, Wall Street (DJIA) expects Democrats to quickly pass another huge aid package early in a Biden presidency amounting to $3 trillion or more.
The added stimulus would boost the economy in the first half of 2021, offsetting the potential drag that could occur ifDemocrats as promised also raise taxes on businesses and wealthy Americans.
A stimulus-leavened economy, in turn, could give another another lift to the U.S. stock market, especially with interest rates at record lows and bond investors getting meager returns. A huge rally over the summer stalled in September after the expiration of most federal aid for the economy and a deadlock in Congress over whether to approve more money.
More recently, the outcome of the bitterly contested 2020 election has unsettled investors and raised doubts about the strength of the economic recovery.
The worst-case scenario, economists say, is a close and contested election that ends up in the courts and takes weeks to resolve.
Such an outcome would kill off the chances of a “skinny” coronavirus-relief bill before the end of the year, said senior economist Sal Guatieri of BMO Capital Markets, and send investors fleeing from riskier assets such as stocks.
Another few years of divided government could also pose a hurdle to the recovery. Biden would not be able to muster through a large stimulus bill if Republicans retain the Senate. And House Democrats could stymie Trump.
“A Biden Administration with a Democratic Congress probably means a massive spending spree accompanied by a significant tax hike,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “A Trump or Biden win with a split Congress would make it difficult to get much done.”
Yet as both parties showed last spring, economists note, they’ve been able to work together in emergencies and would likely join to pass another aid package if the recovery faltered in the next several months.
The latest and record coronavirus outbreak has intensified worries about another lapse in the economy.