As a Biden win becomes increasingly likely, investors on Wall Street are turning their focus to the possibility of another round of fiscal stimulus, vaccine data for phase-three candidates and potential central bank measures to boost economic activity and keep inflation in line with targets.
KEY FACTS
Vaccination is “essential for the normalization of the economy,” Goldman Sachs said in a recent note, and wealth advisory Glenmede doesn’t expect earnings will reach new highs until the second half of 2021, which lines up with estimates for widespread vaccine delivery.
A slew of vaccine data is expected in the coming days and weeks from drug-makers such as Pfizer, Moderna, AstraZenaca and Johnson & Johnson–all of which have said they expect clinical trial results before the end of the year.
Central bank easing from the Federal Reserve is perhaps “the biggest macro topic not receiving enough attention,” notes Vital Knowledge Media Founder Adam Crisafulli notes, but that should start to change domestically on Thursday, as the Federal Reserve concludes one of its eight annual Federal Open Market Committee meetings, during which it often makes key monetary policy decisions.
Senate Majority Mitch McConnell (R-Ky.), “an erstwhile obstacle” to the package, per Crisafulli, changed his tune on stimulus on Wednesday, saying Congress should pass another bill by year’s end and suggested assistance be given to state and local governments–a sticking point for the Democrats’ lead negotiator, House Speaker Nancy Pelosi (D-Calif.).
Fiscal stimulus to state and local governments is now expected to be less generous than under a Blue Wave scenario, UBS noted on Wednesday.
KEY BACKGROUND
The election outcome that Wall Street thinks is now most likely–a Biden victory and a split Congress–”couldn’t have been better for stocks,” Crisafulli noted on Thursday–a sentiment echoed by many Wall Street experts since Wednesday given that a split Congress makes it unlikely Biden’s proposed corporate tax hike becomes law. The economic recovery, on the other hand, remains sluggish and awash with disparities such as continued job losses despite better-than-expected corporate earnings (especially in tech). Meanwhile, the ongoing surge in new Covid-19 cases further stains the economic outlook, fueling discussions about the need for a coronavirus vaccine and further fiscal relief.
TANGENT
Top vaccine candidate AstraZeneca PLC anticipates results from its late-stage trials later this year, the British drug-maker said Thursday when it reported third-quarter earnings. It’s unclear, however, how soon it could roll those out, and the firm previously missed a September target to deliver 30 million vaccines in the United Kingdom. “Even if the vaccine numbers are spectacular,” Crisafulli says, “it still won’t be until the spring or summer when these will be made available to the general population.”
BIG NUMBER
$1.9 trillion. That’s the largest amount Mnuchin offered for the stimulus package before the election, much higher than the amount Senate Republicans have been eyeing (they proposed a $1 trillion bill in July), but still below the $2.2 trillion proposal House Democrats passed in October.
WHAT TO WATCH FOR
Morgan Stanley said in a weekend note that it’s unlikely Federal Reserve policymakers will “soften their call for additional fiscal support”, adding that despite a better-than-expected recovery, and a return to pre-Covid economic levels that could happen in the second quarter, “Policymakers have not let this economic momentum distract from the deep structural problems, particularly in the labor market, that could unfold over the longer run in the absence of further fiscal support.”
WHAT WE DON’T KNOW
Election results. Razor thin margins remain a theme across pending state vote counts. As of early Thursday afternoon, former vice president Joe Biden was leading President Trump in the electoral college, with 264 votes, as called by AP, compared with Trump’s 214. The Senate race, on the other hand, was leaning solidly Republican.
-By Jonathan Ponciano,Forbes Staff