Follow The Bouncing Stimulus Ball

October 08, 2020
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The Week on Wall Street

Stimulus talks in Washington, DC, are getting a lot of attention from investors—and for good reason. The midpoint of the two offers—roughly $1.6 trillion from the White House and $2.2 trillion from US House Democrats—is about 9% of last year’s US gross domestic product (source: Bureau of Labor Statistics). That’s a big deal in terms of potential impact on the economy and markets.

We see stock market performance playing a role in President Donald Trump’s election chances. Historically when stocks rise heading into elections, incumbents tend to get re-elected—although at the same time, recessions tend to bring a change. Given how sensitive the market has been to the on-again-off-again stimulus talks in Washington, we would expect Trump’s interest in getting something done to be very high right now. The S&P 500 Index is up about 4% since August 3, which based on history favors the incumbent, but there’s a long way to go between now and November 3, and the recent recession may favor former Vice President Joe Biden.

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