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Wall Street can relax, the moderates have a mandate

Yes, Democrats now have control of the Senate thanks to a vote by Vice President Kamala Harris, but that’s a majority with a little razor. And they lost their seats in the elections, narrowing their own majority there.

Investors hope this could lead to a compromise on the Covid-19 stimulus bill, albeit perhaps smaller than the $ 1.9 trillion package Biden is pushing for. And for those worried that a more determined blue wave will force Biden to adopt more progressive policies, they can breathe a little easier now.

The stimulus is likely to take precedence over tax increases, changes in health policy and more regulation for banks and large technology companies. In other words, the party̵

7;s Elizabeth Warren / Bernie Sanders wing will have to wait its turn.

“The $ 1.9 trillion stimulus package may not be easy to cross, but something will be done,” said James Reagan, director of wealth management research at DA Davidson.

“As for taxes, they could eventually increase on the corporate side, but it will be down,” is not the first line of business, and investors are responding positively. “

Investors were preparing for a much bigger victory for the Democrats, which could give Biden the freedom to start a much more progressive program. Now this seems unlikely, and not just because of Covid-19: Experts say Democrats need to step carefully to maintain control of Congress in the 2022 by-elections.

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“The market is now valuing the blue wave less in terms of politics than before the election,” said Kent Insley, chief investment officer at Tiedemann Advisors.

“There are fears that if Democrats insist on too aggressive changes, they could suffer and this would increase the risk of them not being re-elected. Moderate Democrats may seek to limit tax increases,” he added.

Calls for stricter regulations may fall on deaf ears

Democrats may need to stop any efforts to impose tighter regulations on large banks. This may be good news for stocks of top financial companies.

“I don’t anticipate any major regulatory changes coming from Democrats,” said Stephen Leslie, a leading financial services analyst at The Economist Intelligence Unit. “The Biden administration will not want to restrict banks, except to abuse the police, they have other priorities.”

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This view is shared by a former top Wall Street banker who briefly served in the Trump administration.

Gary Cohn, a former economic adviser to Trump, a formerGoldman Sachs (GS) Chief Operating Officer and currently Deputy Chairman of IBM (IBM), made the case for the moderates in Washington to exercise more influence.
“Executive action will only take the country so far. Our ability to do great things will be decided by the moderates in the Senate. The way forward is in the middle,” Cohn tweeted on Friday.

The fact that Biden will have to compromise with Republicans could be a problem for the economy, although investors welcome his desire to reach the aisle.

“Markets, subconsciously or not, are betting that the US fiscal package will be diluted by the moderates,” wrote Keith Jux, a macro strategist at Societe Generale, “who remains powerful thanks to the thinness of the waffles. of the Democrat held over Congress. ”

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