(Bloomberg) — If Democrats do “sweep” the November elections and increase capital gains taxes, it would be unlikely to cause more than a temporary slide in the U.S. stock market, according to JPMorgan Chase & Co.

Strategists and prediction markets are increasingly pricing in a “Blue Wave” where Democrat Joe Biden wins the presidency and his party takes control of the Senate, adding to their hold on the House. That might allow for an increase in some tax rates — including capital gains.

If a higher rate become effective Jan. 1, 2022, there would probably be some downward pressure in equity markets in the fourth quarter of 2021, according to JPMorgan strategists led by Nikolaos Panigirtzoglou. But once the new rate was in place, stocks would likely resume their upward trajectory, as they did in the first halves of 1987 and 2013 following increases on some capital gains.



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“Longer term, we see little impact from a prospective capital gains tax rate increase on risk taking and investors’ attitude toward equities as an asset class, given the current low yield and high equity risk-premium environment,” the strategists wrote in a note dated Friday.

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One of the major attractions of equities right now is the relatively high return investors can enjoy, with bonds and cash globally offering historically low yields. Real yields are negative for about $31 trillion of bonds, a separate group of JPMorgan strategists estimated recently. With Biden’s lead over President Donald Trump increasing in recent weeks, Wall Street has been turning its focus to the implications of a potential Democratic sweep that could allow the party to more easily usher in big policy changes.

JPMorgan estimates there could be tax-related equity selling of about $200 billion around a prospective increase in the capital gains