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Original title: What does it mean for Trump to sideline the fiscal stimulus negotiations?
Yearning for a new round of fiscal stimulus supports continued rise in U.S. stocks, butTwitterBaffled analysts on Wall Street, what is the reason for the sudden change in attitude of the president of the United States? Why do many people think the market is unlikely to sell sharply?
On Tuesday, Trump sent a series of tweets that the Republican Party will not conduct further economic stimulus negotiations before the November election.
This statement overturned Trump’s statement on Twitter last Saturday: “America wants stimulus, and it needs stimulus too.”
The tone of Twitter this Tuesday changed: Trump said: “I have instructed my representatives to stop the negotiations until the end of the elections and when I win, we will immediately pass a new stimulus package, focused on the United States. Small Business and Employment Issues “.
Trump’s 180-degree change in attitude shocked Wall Street. What has happened that prompted Trump to change his stance just as the election is approaching so “coincidentally”? We should know that the biggest driving force for US stocks to continue to hold at record highs when fundamentals have not yet recovered strongly is support from fiscal policy.
US stocks plummeted on the president’s Twitter
In the president’s statement, the market immediately began to sell, the Dow rose to fall and closed 375 points. The S&P 500 also fell, falling 1.4% that day.
A senior Wall Street banker said Trump’s move was “completely unreasonable.” Especially as the election approaches, giving up the fiscal stimulus amounts to self-harm.
The new round of fiscal stimulus package has received widespread support, including ordinary people, the Federal Reserve, Wall Street, Democrats and some Republicans in both houses of Congress. In this case, if you press the pause button for negotiations, it is equivalent to opposing public opinion.
The banker said: “This is completely different from Donald Trump’s performance on fiscal policy. He will never fail to have the opportunity to keep his name in history by supporting the fiscal stimulus package.”
Public opinion polls show that responding to the epidemic is a top priority among American voters. Many people believe that filling the vacant posts of Supreme Court justices should wait until November 3.
Trump’s move may indicate that his agenda is arranged in the exact opposite order: He’s busy instructing Senate Majority Leader McConnell to focus all his energy on filling the vacancy of the Supreme Court justices.
Before Trump’s tweet, Senate Majority Leader McConnell had stated that if a deal was reached, he would call another Senate meeting to vote on the stimulus plan.
Now, the Senate has begun preparations for the routine hearing to confirm whether Barrett will fill the justice position.
How to understand?
Republican Senator Susan Collins believes: “It is a huge mistake to wait until the election is over before reaching an agreement on the next COVID-19 rescue plan.”
The continued rise in US stocks is largely dependent on increased fiscal and monetary stimulus, so why didn’t US stocks drop sharply that day, but were instead capped at less than 2%?
Dennis DeBusschere, Evercore ISI Equity Strategist, said: “Since Trump’s tweet to suspend negotiations, the likelihood of Democrats winning the election and controlling Congress has increased significantly, and substantial sell-off may not occur. From the market. However, in the short term market. It may still be in an extremely unstable state. “
Goldman sachsAccording to the analysis of the Democratic Party, the victory of the Democratic Party will have a mixed impact on US actions: “Increasing public spending and accelerating economic growth will benefit the cyclical sector.”
As the likelihood of a Democratic Party victory increases, the stock prices of some companies that benefit from Trump’s corporate tax cuts, such as the energy industry and some banks, may fall.
Those who benefited from the Democratic Party victory are infrastructure-related industries, education, and clean energy-related businesses.
A few hours before Trump’s tweet, Powell stated that if Congress does not agree to release more fiscal stimulus, the economic outlook for the United States may deteriorate again and, at the same time, lead to a “weak recovery and more difficulties to households and businesses “.
According to a recent public opinion poll, about 66% of those polled said they believe “the economy is in trouble and we need more financial support from Washington.”
The biggest problem is Trump’s health. When President Eisenhower suffered a heart attack in 1955, the market plummeted 6% and investors lost approximately $ 14 billion (equivalent to $ 135 billion today).
Economist Dan North said: “We cannot hear any correct information from Trump himself or his medical team and the population around him. They are definitely improving the situation.”
But Lawrence White, an economics professor at New York University, said: “I don’t think the market would care much about Trump’s infection with the new corona pneumonia, as long as the virus is not life-threatening.” “If Trump is rushed to the hospital, I think the market will do it. There was a huge backlash.”
However, even if it is a threat to the life of the president, it will not disturb the market for a long time. On the day of the Kennedy assassination, the S&P 500 Index fell almost 3%, but returned to its original position in just two days.
Dan North said: “The market has been paying attention to all kinds of bad news for several months. The market has developed resistance, which also reflects the forward-looking nature of the stock market.”
When will the “zero interest rate” affect the Fed?
The Fed has stated that the current low level of interest rates will last until at least 2023, while Goldman Sachs believes that the Fed will not raise interest rates until early 2025. This makes the stock market the only option for Investors: The yield on government bonds is simply too low.
But if the Democratic Party wins, the economic recovery can accelerate significantly and, at the same time, cause large, unpredictable inflation in the long run, forcing the Fed to take action.
The Goldman Sachs analysis indicated that if the Democratic Party wins, the Fed’s first rate hike is likely to be up to two years ahead of schedule – even if the market opposes a rate hike, as long as the economy grows. Quick enough, the Fed rate hike can benefit ordinary Americans.
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Editor in charge: Yang Yalong
