October 26, 2020 | Axiory Global – We are only a few weeks away from knowing who the 46th President of the United States is going to be. The heat is rising and Donald Trump, no stranger to heated situations, seems to be adding fuel to the fires.
The President summoned reporters to the State Dining Room where he was throwing a dinner for military commanders. And in a made-for-reality-TV performance, the President announced to his dining guests (and a baffled press corps), that the dinner represents “the calm before the storm”.
This may have sent the press into a frenzy of political speculation, but for anyone who’s been listening to financial analysts, there’s a definite storm brewing in global markets, and these final few weeks leading up to the U.S. election night will reveal what kind of storm is waiting. Here are a few possibilities:
The Blue Wave Storm
A sweeping win for the Democrats is looking more and more likely. A full-strength wave could give the party an expanded majority in the House as well as control of the Senate and White House and at least a couple of state legislative chambers that now have Republican majorities. That would be terrible for Trump, and it would be a disaster for the Republicans.
With the Presidency as well as the House and Senate, Democrats will most likely pass legislation for higher taxes, more regulations, and an increase in national debt. That could be a storm that leaves a wake of the change in the U.S. government that could last many years to come.
The U.S. Debt Storm: Relevance of the Future of Debt Situation for Investors:
A storm around the U.S. debt situation has been gathering momentum for a while. U.S. debts have soared in the past couple of years and it’s not looking like that’s going lower anytime soon.
The debt had already been increasing in 2019 and the advent of the virus has deepened the negative impact on the situation. The current U.S. National Debt has soared past $27 trillion and projections show that the debt might continue to grow to heights not seen since World War II.
Whether this storm turns out to be destructive all comes down to the monetary policies adopted by the winning party. The Republican Party usually supports fiscal conservation but the Trump administration has been very clear that fiscal conservation is not the way it will go.
The future projection for the debt isn’t very bright should Biden win either. That’s due to the government spending programs he’s proposing like the Green New Deal, which, on its own, would cost U.S. taxpayers about $93 trillion.
Without an effective plan to control it, the debt will have to be monetized and a lot of government bonds would have to be purchased by the Federal Reserve. Many Democrats have already publicly encouraged the infamous Modern Monetary Theory, so it is likely that the debt will be monetized should Biden win.
The Volatility Storm
The stock markets hold a fair measure of uncertainty during elections, but they become even more volatile in the weeks right before the election.
The general trend is that the markets rise several weeks before the election. The market falls rapidly very close to the election, and again on election day. And in days to come after the election is over, there’s a recovery in the market. Still, leading up to the elections, there’s always a chance for unexpected market fluctuations. Stocks get especially unstable prior to the elections.
The Forecast Ahead
As the president continues to manipulate the press and savor the speculations, analysts are still hawk-eyed, watching the strength of the gathering storms to see which ones they are likely to be up against. The markets are reacting positively to Trump’s reelection because Republican Party policies are generally considered to be more market-friendly.
But that is, by no means, a rule of thumb especially when other economic factors and fundamentals continue to evolve, affecting the direction the market could likely take.
About Axiory Global
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