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What would a second Biden term mean for Markets?

President Biden announced, in a rather unofficial fashion, that he would seek a second term as President of the United States for next year’s election. It’s been almost four years that the octogenarian Democrat has been in power, and it is fair to say that his presidency so far has been a political fiasco. Even Democrats acknowledge that President Biden was not their best pick. Indeed, Biden’s election was not based on his policy proposals but strictly a sanction vote against Trump. According to a recent CNN poll, Only one-third of Americans say that President Joe Biden deserves to be reelected. Furthermore, a majority in Biden’s party say they would like to see someone else as the Democratic nominee for president next year. Thus, more than half of the country does not want Joe Biden to run again for president, and worse; most voters in his party want someone else but him to run for office. This is a clear indication he is not wanted by the American people. Why does he want to run if he knows that two-thirds of the country won’t vote for him? More importantly, if he were elected, what would his second term mean for capital markets and the economy?

Source: Bureau of Economic Analysis

Within nearly four years, the Biden presidency weakened the American economy and financial markets. Inflation surged under his presidency, which showed his inability to manage the economy effectively. Under Presidents Obama and Trump, inflation was under control and the economy grew significantly. Sure, in 2020, economic growth declined. This decline was no one’s fault. It was not a man-made happenstance. It was a healthcare conundrum that shrunk the economy that year. The Federal Reserve, however, poorly handled that economic contraction by printing money through stimulus checks, which increased the money supply, and consumer spending, and this consumer demand is what led to inflation. The value of investments has been for the most part down under Biden’s presidency. The stock market had one of its worst years in 2022 to the point that the S&P 500, Nasdaq Composite, and Dow Jones were all in bear market territories.

Source: Bureau of Economic Analysis

While Joe Biden could not control the stock market, his policies indirectly affect market behaviors. Indeed, President Biden raised taxes at a time when raising taxes was not a viable alternative to stimulate economic growth. Consumer purchasing power was already declining because of inflation, and President Biden increased taxes to fund his various programs including financially assisting Ukraine while Americans were getting into indebting. As inflation remained rampant in 2022, consumers started to save more. And taxing them in times of economic contraction meant that President Biden was taking more from the American taxpayer when he was supposed to make the taxpayer save more of his income. How would a second Biden presidency affect markets?

It is obviously impossible to predict exactly how four more years of a Biden presidency would affect markets, but based on policy patterns, it is possible to determine how markets may behave. President Biden recently stressed the need for a “billionaires tax.” And one exclusive feature of his billionaire tax proposal is to tax unrealized capital gains, meaning that an asset owner will be taxed for holding an asset he or she hasn’t sold yet. An asset (also known as capital) is only taxed once it is realized. Imposing a tax on unrealized capital gains will distort the flux of investment in capital markets. Many middle-class Americans do invest in capital markets (stocks and bonds). If an unrealized capital-gain tax is enforced, then middle-class Americans will be as equally taxed as billionaires, which is completely unfair. Beyond the unrealized capital-gain tax that President Biden would want to implement if reelected, the President will impose a federal progressive income tax, which will disincentivize high-income earners from putting their money to use to create investments and value. It is important to understand that the strength of the American market is rooted in its capacity to produce wealth through various important. If government imposes mechanisms to prevent the flow of investments, then markets cannot respond to people’s needs and wealth cannot be created.


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