What A Democratic Sweep Of Congress Means For The Markets

Moderate Democrats have assured they wouldn’t vote for such a measure. However, nothing is set in stone in politics. Most analysts think it’s very unlikely, but it’s something traders ought to be aware of after Jan 20th.

Republicans are likely to support some manner of stimulus spending, and it’s possible that in reality, both sides will compromise on a lower amount.

Despite Biden’s announcement, most analysts still see between $700-800B in stimulus spending. This is aside from the $464B implied from the addition of the stimulus check top-up.

Can taxes go up?

Democrats don’t have a majority sufficient to increase government spending. That said, it is possible for their majority to pass tax modifications through a process called “budget reconciliation”.

Trump’s tax cuts were passed through this mechanism. So, Biden tax hikes can also pass in the same manner. Analysts are looking at potential increases in:

  • the top marginal tax rate to 39.5% (return to 2016 levels),
  • capital gains tax,
  • “green” taxes.

As for individual stocks, following the events on Capitol Hill, Biden is reportedly under increasing pressure to push for regulation of social media companies.

On the one hand, some analysts believe that government guidelines for social media would help the firms avoid controversies and further advertising boycotts. (The “Adpocalypse 3.0”, as it has been called in reference to the 2017 move by advertisers against YouTube content policies.)

On the other hand, there are other members of the Democrat caucus that are pushing for breaking up major social media companies, particularly targeting Facebook.

Democrats don’t have a “supermajority” in Congress that would allow them to pass legislation unimpeded.

They are in a much better bargaining position with a marginal majority. However, most major legislation requires more of a majority than they have.

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