US Elections are driving the global financial markets for quite few weeks now and resultant volatility can be seen in the equity , currency markets. This time the event is unfortunately timed timed since it has coincided with the pandemic, comingled with US China stressful ties, ambitious target of economic recovery etc. The challenges lying for the entire globe are magnificent. During such times, it is very essential for the representative parties to showcase their absolute plans for economic recovery along with containment of the virus.
Although the long term impact shall be based on the economic recovery, vaccine, containment of virus, the trade policies adopted by the nation, fiscal stimulus.
Since markets are oscillating with extreme volatility, the basic question is what shall be immediate impact of elections on the markets.
FISCAL STIMULUS
2020 Pandemic Stimulus till date – $ 2 trillion
Increase in the money supply due to QE adopted by US Fed have had below impact:
Driving EQUITIES higher
Weakening US Dollar
Rising Gold
TUG OF WAR IN US HOUSES
There are differences between the parties on the amount of next stimulus bill. Democrats are proposing larger stimulus in contrast to thin amount by Republicans. Larger the Stimulus package, Equities are driven higher.
Republicans:
August ‘20 Proposal – USD 600 billion
Revised to – USD 1 trillion
Further, revised to – USD 1.8 trillion
Democrats:
August ‘20 Proposal – USD 3 trillion
Revised to – USD 2 trillion
Already the challenges have not been lesser with highest covid cases and rising unemployment, that sudden demise of US Supreme Court Justice Ruth Ginsberg further led to delay in passing fiscal stimulus bill.
Uncertainty over next Stimulus Package is driving the markets Volatile...
TAXATION POLICIES
Trump in 2017,Reduced Corporate tax rate from 35 % to 21%
Whereas, Biden is proposing Increase in Corporate tax rate to 28%
Higher Corporate taxes shall lead to decrease in net corporate earnings
IMPACT ON INDIAN IT COMPANIES
‣Trump government imposed restrictions on H1B visas
‣Many Indian IT companies are having businesses in US
‣Hiring US resources is costlier than having Indian resources working in US
‣Biden has proposed to lift the restrictions on H1B visas thus benefiting the Indian IT companies
‣With Biden leading the polls till date, Indian IT stocks have rallied considerably
INFY, TCS, Wipro weighs around 13-14% in Nifty 50
OTHER FACTORS TO WATCH FOR
Effectiveness of stimulus packages in recovery of economy
In many parts of globe, covid is making a comeback
Autumn is expected to bring a rise in the infections
Election numbers are adding to volatility to equity markets
US Elections process may continue for a longer period due to voting method adopted by Republicans
DOLLAR AND GOLD
While Dollar is expected to weaken on account of massive stimulus packages, Biden win may weaken Dollar further. USD/INR movement shall be affected by Dollar value.
Gold is expected to strengthen on Dollar’s frailty
EQUITIES
Immediate Impact on US Equity markets due to elections alone appears to be muted
With correction over coming time on account of -
‣Higher Corporate taxes in future on Biden win
‣Higher existing Equity valuations
US market sentiments also have been driving movements across globe, including Indian markets.
It is difficult to forecast the impact of US elections on Equity markets due to inter play of various other factors and their timing which are driving markets highly volatile.
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