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Stocks Cheer as Biden Charts a Moderate Course for the Economy

Last Updated September 23, 2020 2:03 PM
Andrew Packer
Last Updated September 23, 2020 2:03 PM
  • The presumptive Democratic candidate is looking at a moderate, pro-growth approach to the economy.
  • The economy is one area where Biden lags Trump in the polls.
  • Progressives are frustrated, but markets like what they hear so far.

Stocks surged in late trading Wednesday, as Joe Biden’s campaign team leaked details about his upcoming proposal for the economy.

Biden’s Plan Reflects Political and Economic Reality

The plan, which will be officially announced Thursday, calls for more manufacturing and innovation at home , a plan in line with many statements made by President Trump. It’s also similar to the president’s program with a “buy American” platform.

It shelves some of the more ambitious plans proposed by progressives during the Democratic primary, such as the Green New Deal. With a focus on racial equality and care-related jobs, it contains several planks that still differentiate from those of Trump.

It’s the right move for where the economy is at right now. Even without it being official government policy, several companies are looking to repatriate their supply lines , or at least move them out of China. Any government policy to help that process could help kickstart growth at home.

There are two caveats to Biden’s plan so far. In time, a more robust economy will be able to make some of the changes that progressives are calling for today. Secondly, there’s still no detail on any changes to tax policy.

Biden Tax changes
Biden has previously supported raising taxes, mainly on market-driven wealth, a view unlikely to change with the addition of other proposals. | Source: Vox 

Biden has called for higher tax rates, particularly on those who derive their income from investments , on several occasions.

As Jared Bernstein, Biden’s economic advisor put it ,

… his destination on many key issues, particularly on the economy and health care, is very similar to the further left but his path to get there is going to be more incremental.

Progressives Aren’t Too Pleased, But the Markets Love It

Judging by the market reaction, investors support a plan that would include some pro-growth and pro-job policies, no matter who is making them.

Several market analysts noted earlier in the year that the stock market was starting to show a strong inverse relationship to the strength of socialist Bernie Sanders in the polls  during the Democratic primary. The worst performers when Bernie picked up a win? Health care stocks.

Markets abhor uncertainty. Political changes can bring uncertainty. With the economy dealing with a pandemic-induced recession, markets are paying attention to politics earlier than usual.

Biden’s pro-growth and pro-manufacturing planks could do well enough to help Democrats win rust belt states like Michigan and Pennsylvania, which narrowly flipped to Trump in 2016. Biden has historically done well with blue-collar workers , although that group has been less important to Democrats in recent elections.

Biden and Trump issues
The economy is the one issue where Trump leads Biden in the polls. | Source: CNBC 

The economy is the one issue where Trump leads Biden  in national polls. Biden’s moderate course may change that.

In his 40-plus years in politics, however, Biden has never driven the Democratic party’s planks. But he has been willing to go along with the party.

So markets may be cheering now, but if Biden and the Democrats win big in November, there may be a radical reassessment.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.