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 had a better performance in the debate against the 33% who gave victory to Joe Biden. In addition, 57% of the people consulted indicated that they do not have 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 snapshots of the presidential race, analysts at the investment bank UBS anticipate a volatile environment 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 Branch.
“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.
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What if Joe Biden wins?
“A Biden administration would try to raise taxes on the wealthiest Americans. However, the ability to do so is likely to be limited by a Republican Senate, which again leads 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, seeing them as opportunities to take advantage of concessions from both adversaries and allies. Based on actions taken in his first administration, we assume higher tariffs will apply. “While its imposition increases Treasury revenue, it comes at the cost of renewed inflationary pressure and geopolitical friction,” they noted.
- 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 such a scenario would mean major changes in fiscal policy would be blocked, as well as 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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