After a year of uncertainty with a coronavirus pandemic and presidential election shaking up the markets, we are finally seeing clarity ahead, and markets should respond favorably to the clearer outlook.
“We have a lot more certainty and clarity going forward. So what does greater certainty mean for the economy? It means greater confidence from both businesses and consumers. That in turn can mean higher capex spending by businesses because there is more visibility about the future. It gives hope even as COVID-19 cases rise,” Kristina Hooper, Chief Global Market Strategist at Invesco, said in a research note.
Hooper highlighted a number of factors that have contributed to our greater certainty in the outlook ahead. For starters, progress in a Covid-19 vaccine that could soon be distributed may help alleviate the virus that has overshadowed much of the economic outlook as the spike in coronavirus cases and threats of restrict shutdown measures persist.
The political uncertainty has more or less cleared with Joe Biden taking the majority vote, and a split U.S. Congress potentially keeping drastic policy changes in check. Hooper argued that the odds of a tax hike in the U.S. next year are very slim. Many previously feared that Biden would hike corporate taxes and income taxes on the wealthy to fund his ambitious social policies. However these changes are less likely with a Republican controlled Senate, and Democrats losing some seats in the House of Representatives.
Looking to overseas actions, Hooper believed U.S. foreign policy could return to a more traditional approach after Donald Trump’s more contentious approach to trade and foreign relations. This traditional path to foreign policy could create greater predictability for markets.
Nevertheless, Hooper warned of the ongoing rise in coronavirus cases and how countries may react to quarantine these infections. Additionally, there is lingering uncertainty over U.S. fiscal stimulus, with Democrats hoping for a large economic package and Republicans pushing for a more moderate approach.
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