- Stimulus saga continues but there appears to be little hope of a pre-election deal
- Election odds stabilize with Biden advantage at a spread of about 30 points
Stimulus saga continues but there appears to be little hope of a pre-election deal — After sparking some hope about an airline relief deal on Wednesday, Speaker Pelosi on Thursday clarified that there will be no airline relief bill without an overall relief package. That comment put negotiations back to where they were before Mr. Trump on Tuesday halted the talks.
Meanwhile, President Trump Thursday morning said in an interview, “Well I shut down talks two days ago because they weren’t working out. Now they are starting to work out, we’re starting to have some very productive talks.”
Speaker Pelosi and Treasury Secretary Mnuchin held another phone call on Thursday to discuss stimulus bills. Ms. Pelosi says the White House has yet to fully respond with a counteroffer to the $2.2 trillion stimulus bill that the House passed last week.
Even if the White House and Speaker Pelosi get close to a deal, there is no guarantee that Senate Majority Leader McConnell will allow a compromise to come before the Senate. The majority of Senate Republicans are opposed to a bill as large as $1.7 trillion, and it would take a strong effort by President Trump to get Senate Republicans to go along with a bill of that size or larger.
The markets appear to have given up hope for a stimulus bill before the election, but they are still hoping for a stimulus bill after the election during the lame-duck session. There is also market speculation about the chances for a big fiscal stimulus bill, including infrastructure and green energy in early 2021 if Democrats win a sweep of Washington in the upcoming election.
Election odds stabilize with Biden advantage at a spread of about 30 points — The betting odds at PredictIt.org, for whatever they are worth, have stabilized since Tuesday with a Biden advantage of about 30 points.
This has been an eventful week with (1) President Trump returning from the hospital on Monday, (2) a volatile ride for the stimulus-bill negotiations, and (3) the VP debate on Wednesday. Yet the election odds haven’t shifted much since Tuesday.
The spread in favor of Biden was 32 points yesterday evening, with 68% odds in favor of former VP Biden winning the presidency versus 36% for President Trump. The current betting spread of 32 points is far wider than the 10-point spread (57% for Biden, 47% for Trump) that was seen before last Tuesday’s Trump-Biden debate.
The chances for any big changes in the polls were reduced by yesterday’s news that there will not be a second Trump-Biden debate next Thursday. President Trump said he would not participate in the second debate after the Commission on Presidential Debates announced that the second debate would be virtual because of Mr. Trump’s Covid illness. It remains to be seen whether there will be a third debate on Oct 22.
If there are no more debates, then there will be no more headline events to draw voters’ attention, and the campaigns may just coast to a conclusion. Yet there are still three weeks left for some new “October surprise,” the first one being President Trump’s Covid hospitalization. Also, either campaign may be holding back with some surprise to spring on the other party when there is only a week or two left until the election.
Meanwhile, the betting odds currently favor Democrats wining full control of Congress. The spread in favor of Democrats taking control of the Senate is currently 33 points (69% for Democrats vs 36% for Republicans), up sharply from the 11-point spread (57% for Democrats vs 46% for Republicans) seen before last Tuesday’s Trump-Biden debate. Meanwhile, the Democrats are heavily favored to retain control of the House with the odds being at 88% for Democratic control vs 14% for Republican control.
The U.S. stock market seems to be in a remarkably positive mood going into the November 3 election. The markets are now less worried about a contested election since the odds have moved sharply towards Mr. Biden. Yet there is still plenty of room for a contested election regardless of the voting margins, with appeals going to the Supreme Court.
If the Democrats gain full control of the presidency and Congress, then stock investors will be worried about Mr. Biden’s plan to raise the minimum corporate tax rate to 28% from the current 21% level, since that would take a direct bite out of after-tax earnings and thus stock prices.
However, stock investors currently seem to be happier about a fiscal boost to the economy than they are worried about higher taxes. The consensus expectation is that if Democrats sweep Washington on November 3, they will pass a big fiscal stimulus bill in early 2021 as a pandemic relief measure and to fulfill policy goals such as improved infrastructure and a quicker move to clean energy.
Meanwhile, bond investors are braced for expectations that Treasury yields could rise if Democrats sweep Washington since the Treasury market will be called upon to finance a new deluge of debt to finance a big fiscal stimulus bill. Treasury yields have already risen in the past 1-1/2 weeks as the betting odds improved for a Democratic sweep. If there is a big stimulus bill that boosts the economy, then the Fed can be expected to lean towards a quicker tightening of monetary policy.
