- A Democratic sweep in November would place stocks on a rollercoaster ride through the end of the year, Morgan Stanley strategists said Friday.
- US equities are among the few assets poised for a “detour” should a so-called blue wave take place. The market’s steady climb would reverse temporarily before correcting in 2021, the analysts said.
- Stocks would initially dip on fears of higher corporate taxes and uncertainty around future stimulus, according to the bank.
- Once the party can clarify its fiscal relief plans, a follow-up to March’s CARES Act and continued economic recovery can place stocks back on their upward path, the strategists added.
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A “Blue Wave” come Election Day can boost stocks, but only after bouts of strong volatility and a knee-jerk decline, Morgan Stanley strategists said Friday.
Current polls suggest Democratic presidential nominee Joe Biden will beat President Donald Trump in November, and that the Democratic Party holds a strong chance of securing control of Congress. Yet US equities are among the few assets poised for a “detour” should such a sweep take place, the bank said in a note to clients.
While some assets such as Treasurys and oil would face a steady decline, an overwhelming Democratic victory would form a temporary deviation from stocks’ upward trajectory, they added.
The market’s immediate reaction will likely be negative, according to the firm. Fears of tax hikes will drive initial selling and lower earnings outlooks.
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The continued economic recovery would drive some derating of earnings-per-share multiples, posing a short-term risk until