Markets are pricing in a Biden victory and a Democratic Senate to fuel massive stimulus in 2021, JPMorgan says
- Investors are increasingly preparing for a Democratic sweep in November and frontloaded stimulus to boost the economic recovery, JPMorgan said following a recent call with clients.
- Joe Biden, the Democratic nominee, maintains a hefty lead in polls in what's shaping up to be "the most stable election in modern history," the bank said.
- Markets now view a Biden win and a split Congress as the worst outcome for stocks, as it would likely further the stimulus stalemate seen in recent months.
- "There could be some disappointment" if Republicans maintain their Senate majority, JPMorgan added.
- Visit Business Insider's homepage for more stories.
Markets are increasingly pricing in a Joe Biden victory and fresh stimulus, leaving room for a sudden slump should election results miss expectations.
JPMorgan held a call with investors last Wednesday to gauge sentiments ahead of Election Day. Many speakers and market participants said they see a so-called blue wave solidifying, with little time left for President Donald Trump to shift momentum in his favor, the bank said in a recap note on Monday.
Biden, the Democratic presidential nominee, has enjoyed a consistent lead in what's shaping up to be "the most stable election in modern history," the bank said, leaving investors to position for a Democratic sweep.
All eyes are now on Senate races, as stimulus hinges on Congress' makeup. Markets expect frontloaded stimulus as a Biden administration works to pull the US economy out of its virus-induced downturn. The projection marks a stark shift from past months when investors viewed a split Congress as the best outcome.
"There could be some disappointment" if Republicans maintain a Senate majority and hold up a massive relief package, JPMorgan said.
Markets have also grown less concerned about a contested election, the bank added. More than 26 million votes had been cast as of Saturday, representing nearly a fifth of all votes cast in the 2016 presidential election. With 21 states able to start counting ballots early, results could arrive on or soon after Election Day on November 3 and allay fears of a significant delay.
Economists and lawmakers have repeatedly called for fresh stimulus ahead of the election, but the chance of such a deal is fading fast. House Speaker Nancy Pelosi on Sunday imposed a 48-hour deadline for negotiations with the White House, seeking to fast-track the talks after three months of sluggish progress.
Even if the two groups reach a deal, Senate Republicans oppose a large bill. Senate Majority Leader Mitch McConnell has indicated the body could vote on a $500 billion proposal as soon as Tuesday. But Senate Democrats are poised to block the measure, diminishing hopes for near-term fiscal support.
Investors still might not get the stimulus boost they're hoping for should a blue wave materialize. Democrats would need at least 60 Senate seats or the elimination of the filibuster to completely control Congress. Participants on the call described stimulus approval in a lame-duck session as "unlikely," JPMorgan said.
In all, an orderly transfer of power and Senate election outcomes would overshadow the winner of the presidential race, JPMorgan said. A split Congress under a Biden administration is now viewed as the worst outcome for the S&P 500, as it would likely yield the same stimulus stalemate.
Investors should pay attention to Senate races in swing states and to chatter about a Biden Cabinet, as both would play critical roles in economic policy moving forward, the bank added.
Now read more markets coverage from Markets Insider and Business Insider:
Tesla will gain another 14% as company closes in on 500,000 annual deliveries, Wedbush says