Investing.com – In the first US presidential debate, held on the night of Thursday, June 27, current Democratic President Joe Biden failed to convince audiences that he has the ability to continue leading the world’s largest economy in a second term. Quite the opposite. The meeting was more favorable for Republican Donald Trump, who is seeking a second non-consecutive term in the elections on November 5.
A survey published by the American network CNN shows that 67% of the audience believes that Donald Trump performed better in the debate, compared to 33% who gave the victory to Joe Biden. In addition, 57% of the people surveyed said they have no confidence that Biden is capable of leading the country, compared to 44% who do not trust Trump. Before the debate, the proportion was 55% – 47%, respectively.
With these photographs of the presidential race, analysts at the investment bank UBS (SIX:) anticipate an environment of volatility in the markets, as well as reactions to possible scenarios that could arise from the US electoral process, also considering the result in the Legislative power.
“The composition of Congress is a key component when assessing the likelihood of any policy being implemented. This is especially true in the case of fiscal and social policy, where the role of Congress cannot be ignored,” they explained in an analysis note.
What if Joe Biden wins?
“A Biden administration would attempt to raise taxes on the wealthiest Americans. However, the ability to do so would likely be limited by a Republican Senate, which again brings us to a compromise on taxes,” they explained.
With a Democratic majority in Congress
Analysts warned that a Biden presidential victory and a Democratic majority in Congress could be the most negative outcome for stock markets because there would be a greater likelihood of a corporate tax increase.
“The expiration of some 2017 personal tax cuts could also be a slight drag on consumer spending. “Regulatory pressures could increase in some industries, but overall this would be more of an extension of the status quo,” they mentioned.
With a divided Congress
UBS expects that if Biden wins but Congress is divided, we could expect much more limited policy changes and a more muted impact on financial markets.
“A Biden administration would be forced to rely heavily on executive action and regulatory oversight,” they said.
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What would happen if Donald Trump wins?
“Trump has repeatedly expressed support for tariffs, viewing them as opportunities to exploit concessions from adversaries and allies alike. Based on actions taken in his first administration, we assume that higher tariffs will be implemented. While their imposition increases Treasury revenues, it comes at the cost of renewed inflationary pressure and geopolitical friction,” they said.
With a Republican majority in Congress
UBS analysts see an extension of the 2017 tax cuts likely to take place with a possible further reduction in corporate rates.
“Funding for these initiatives could come from a reduction in support for the green energy provisions of the Inflation Reduction Act,” they explained.
From their perspective, UBS anticipates that stock markets would likely welcome lower taxes and lighter regulation, but this would be partially offset by concerns about the costs and inflationary impacts of higher tariffs and trade wars.
“Interest rates and the dollar are likely to rise initially. Financial sectors stand out as key potential beneficiaries in this scenario due to lighter regulation,” they said.
With a divided Congress
Strategists warned that this scenario would involve blocking major changes in fiscal policy, as well as imposing higher tariffs and lighter regulation.
“Overall, these two forces would have a mixed impact on equity markets. The dollar and interest rates would likely rise moderately. The financial sector would likely be the main beneficiary of lighter regulation,” they explained.
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