Goldman Sachs on Joe Biden: Don’t fear too much:
“The dominant market issue in our view so far has been Vice President Biden’s proposal to reverse half of President Trump’s cut in the corporate income tax rate from 35% to 21%, which we think could become a strong possibility in the event of a Democratic “sweep”. Given that such a reversal would translate directly into a hit to after-tax earnings, the implication is that it would flow through to a notable hit to US equity market valuations. Even here, the picture may be more complicated, however. There is a good chance that any shift would be fiscally neutral and could also be phased, so the full market impact would depend on what other measures accompanied it (some, like capital gains tax increases, might add to pressures of course). And given the high level of uncertainty about the broader economic outlook, these shifts may be harder to isolate than in a less volatile market. We think more attention should be focused on the international implications, where a Democratic presidency is likely to move away from the aggressive use of trade policy in the current administration and adopt a more favorable view of international institutions and alliances. Given the bid that the trade war has lent to the Dollar, we think such a move could reinforce the shift towards USD weakness, potentially ultimately also against North Asian currencies. That said, ahead of November, a tough tone on China from the Administration, and perhaps also from the Biden campaign, seems more likely than not, so we would remain cautious around currencies in the region over the near-term. Given lower implied volatility, we think these FX implications of the upcoming elections may be a fruitful area to explore”