When Is Mr. Market Going to Start Worrying About President Biden?

Donald L. Luskin
Monday, July 27, 2020
Bidenomics would knock 12% off S&P 500 earnings and give the Fed a new third mandate.
US Macro
US Election Model
US Stocks
US Bonds
Federal Reserve
Markets are not acting like the US presidential election is less than 100 days away, with a potential “Democratic tsunami” ushering in a period of anti-growth economic policy. Perhaps markets are ignoring the risk, perhaps they don’t think Bidenomics will be so bad, or perhaps they think Trump will be re-elected. We are braced for a new equilibrium if markets suddenly decide to be more worried. The most anti-growth element of Bidenomics is tax policy, under which after-tax earnings would fall for all Americans, and higher corporate taxes would cut S&P 500 income by about 12%. Biden now says he would not seek to ban fracking, and his trade and Covid-2019 policies are similar to Trump’s. But de-carbonizing power generation would decimate the coal and natural gas industries. Biden would increase banking regulation, including a “third mandate” for the Fed to pursue racial equity. Significant infrastructure spending is proposed, mostly in “clean energy.”