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Wall Street Faces Brutal Stock Market Reckoning with a Joe Biden Victory

Last Updated September 23, 2020 2:01 PM
Joseph Young
Last Updated September 23, 2020 2:01 PM
  • Wall Street may sell off stocks in November if Joe Biden gets elected as President.
  • Wells Fargo executive Christopher Harvey said potential changes to the tax code remains a real threat to equities.
  • The number of infections in the U.S. continues to increase, while the relationship with Germany worsens.

Wall Street is not fully pricing in the possibility of Joe Biden winning the U.S. presidential election. If Biden gets elected, a Wells Fargo exec warned stocks might see a sell-off. 

Christopher Harvey, the head of equity strategy at Wells Fargo, told CNBC’s Trading Nation said:

We just don’t think it’s fully priced into the market place at this point. Biden is moving up in the polls. What does that mean for taxes? Can they [Democrats] win? Not just the White House, but can they win the Senate, as well?

A potential change in the tax code raises the probability of a stocks pullback in Q4 2020, Harvey warned.

What Does Wall Street See in Stocks in the Short-Term?

Strategists in Wall Street are concerned about two macro factors: the high unemployment rate and the second wave of infections.

The U.S. has been trying to reopen the economy since early June. But, the steep increase in virus cases led states to be cautious once again.

Consequently, 12 states have paused the reopening of the economy, citing higher infection rates and a resurgence in cases.

Houston Mayor Sylvester Turner said :

The community’s infection rate is three times higher today than it was three months ago.

Stocks are treading carefully in after-hours trading following a 2.84% drop on June 26. The Dow Jones Industrial Average (DJIA) slightly increased by 133 points in the futures market ahead of the market open.

The Dow Jones Industrial Average (DJIA) looks to recover after a steep drop on Friday | Source: Yahoo Finance

An increasing number of states prolonging lockdown or restrictive measures can negatively impact stocks in the short-term.

Harvey believes stocks are vulnerable to a 5% to 10% correction in the near-term. But, the strategist emphasized that it would be a healthy pullback for the market

He noted:

We’ve gone a little bit too far, too fast. And, now, we just need a healthy correction.

The U.S. looks to reach a new peak in virus cases according to data from the Centers For Disease Control and Prevention , fueling more uncertainty.

The U.S. already surpassed 2.5 million infections as of June 28, as global cases passed 10 million.

Geopolitical Risks Continue to Pile On

The U.S. is maintaining a tense relationship with China over the virus and the phase one deal. Now, the relations between the U.S. and Germany are in danger.

Heiko Maas, Germany’s foreign minister, reportedly said that its relationship with the U.S. might never recover . The minister emphasized that the election of a Democratic President would not change it.

Deutsche Wells quoted Mass as saying:

Everyone who thinks everything in the trans-Atlantic partnership will be as it once was with a Democratic president underestimates the structural changes.

The deteriorating relations between the U.S. and its allies coincide with the struggle to reopen the economy. Wall Street expected U.S. President Donald Trump to focus on economic recovery heading into the second half of 2020.

New virus cases continue to soar in the U.S. | Source: CDC 

The unexpected tension with Germany could trigger newfound selling pressure on stocks.