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Barron's: These 4 Election Issues Could Jolt Stock Market

Barron's: These 4 Election Issues Could Jolt Stock Market

By    |   Monday, 14 October 2019 09:24 AM

UBS strategist Keith Parker warns that four major issues of the 2020 election could jolt the stock market.

The S&P 500 has gained more than 18% in 2019, while the Dow Jones Industrial Average is up 15%—but with many Democratic candidates still in the race, the number and range of policy proposals is vast, Barron’s explained.

Parker’s four concerns:

  • Corporate Taxes: For example, a reversal of Trump’s corporate tax cuts, increasing rates on profits back to 35% from the current 21%—which is supported by Sens. Kamala Harris (D., Calif.) and Cory Booker (D., N.J.)—would reduce S&P 500 companies’ earnings per share by an estimated 7%, according to Parker. “Tax increases require Congressional support and have been very hard to pass in the past,” wrote Parker, “Allowing legislation to expire is easier than passing new laws.”
  • Wealth Taxes: Many Democratic candidates support higher taxes on income, capital gains, and wealth—especially for people who have more money—to fund things such as health care, housing, and education.
  • Consumer Benefits: Almost all candidates have come up with proposals to benefit U.S. consumers and middle-class families. Most candidates also support an increase in the minimum wage to $15 an hour.
  • Health Care: The big debate about health care during this election centers on Medicare for All. Parker believes it would be very difficult for Medicare for All to become reality. “The Democrats control the House but not everyone is necessarily on board. House Speaker Nancy Pelosi’s main focus has been on strengthening ACA and not replacing it,” wrote Parker. “In the Senate, Republicans would likely filibuster the bill, causing it to enter deliberation into perpetuity.”

Meanwhile, economists are divided about when the next U.S. recession will arrive, but they largely agree on this: the country will need to fight it with a massive fiscal program, and be ready to swallow deficits that may eclipse the trillion-dollar shortfall run by the Trump administration this year.

Past discussion has focused on the Federal Reserve as the more powerful first responder, and how rising U.S. debt carries its own risks. Now talks are about how much money ought to be spent and where it should go - whether to infrastructure, programs to counter climate change or direct payments to households, Reuters reported.

In the next recession, the United States should contemplate “a pretty generous package,” of perhaps as much as $1.7 trillion, double the amount approved for recession fighting in early 2009 during a steep downturn, Karen Dynan, a former Fed and Treasury official now at the Peterson Institute for International Economics, said in a recent discussion of the world economic outlook.

“We do have fiscal space,” she said.

This pro-debt attitude finds broad agreement among corporate economists, academics, think tank analysts, and private forecasters alike, and not just in the United States.

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UBS strategist Keith Parker warns that four major issues of the 2020 election could jolt the stock market.
2020, election, stock, market, barrons
Monday, 14 October 2019 09:24 AM
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