Stephanie Kelly, Aberdeen political economist, joins Yahoo Finance’s Akiko Fujita and Zack Guzman to discuss the final push for voters from former Vice-President Joe Biden and President Donald Trump and the impact there could be on markets from the election.
AKIKO FUJITA: President Trump and, of course, former Vice President Joe Biden spending the final 24 hours before the election here in some key swing states. President Trump today taking his campaign to four states, including Michigan and North Carolina, while Joe Biden is spending his day in Ohio and Pennsylvania.
Let's bring in Stephanie Kelly. She is a political economist at Aberdeen. And, Stephanie, just give me your sense of where things stand. Where is the state of play with less than 24 hours to go?
STEPHANIE KELLY: I think one of the most striking things about this election has been the relative stability of the polls, and we've seen around the edges a couple of points here, a couple of points there. But really, we're going into tomorrow with, you know, the Democratic candidate with kind of an eight- to nine-percentage-point lead in the polls, which is really quite striking, particularly given the partisan environment.
Now, does that mean that Trump can't pull off a last-minute win? Absolutely not. We know in the past there have been issues with polls and capturing kind of particularly the Trump voter base. Have pollsters been able to kind of resolve the issues before? We know they've made changes, but unfortunately with polling you kind of don't know until you get the electoral results whether that's been too much, not enough, or just right. And so that's the question is like is it a Goldilocks polling year or are we going to end up with similar issues that we had in 2016?
ZACK GUZMAN: Yeah, and Stephanie, to your point on that front, I wonder how much of today's market pop is due to maybe that continued strength in terms of the lead that Biden has right now heading into election day. But there is uncertainty about what happens in the Senate race, and obviously that would loom large when it comes to the longer-term question of what kind of stimulus package awaits us on the other side of the election. How does that maybe play out a bit stronger here in terms of where the market goes and what even we might see in terms of interest rates here down the line?
STEPHANIE KELLY: So I think the way we think about this is kind of you can separate out what can the president do on his own and what does he need Congress to work with him on, right? And so I think particularly for markets on an index level but also at sector level, it really matters whether you get that big fiscal-policy support that, you know, the Democrats have been talking about, somewhere in the realm of $2 to $3 trillion of stimulus upfront at the beginning of the term followed by further stimulus-- you know, a big increase in spending partly offset by tax. All of that is kind of huge shift in the size of, you know, the fiscal support we're seeing in the US economy.
If, you know, the Democrats don't win a majority in the Senate, all of that goes away, I think, and you get maybe a little bit of fiscal support. You don't get the big kind of boost that you see. And for markets, that's a huge different environment economically. It means that support during the pandemic is much lower, and then that has a natural knock-on effect. It puts much more pressure on the Fed to continue to provide that support and leaves them tethered to the lower bound even longer than we currently see happening.
That said, you know, it's worth bearing in mind the president can do a lot in trade and in regulatory space, and there you can kind of see the key sectors to watch there-- tech, obviously, health care, energy, both the fossil fuels and the green energy in terms of winners and losers. And I think that's really where the interesting story is going to be is whatever the outcome, there will be winners, and there will be losers. It's about finding who they are, and that really depends on who's in the White House but, as you say, crucially, who's in the Senate.
AKIKO FUJITA: Stephanie, you know, we've talked so much about the fiscal support and what that ultimate stimulus bill could look like depending on who wins big-- who wins in a big way come tomorrow.
But to your point on tech, I'm curious how you're looking at the policy shift there. When you think about the crackdown on big tech, at least the antitrust issues, it seems like there is a significant bipartisan support that is still there. On issues like section 230, you've seen the Republicans and Democrats differ a little.
STEPHANIE KELLY: Yeah, and I think this is where it's really important. The tech stuff is probably the hardest to parse out because, you know, these aren't kind of medium-sized enterprises that can't afford a big fine every now and then, right? These are huge, very profitable businesses.
However, I think under the next term under either president, we do see tech under more pressure in the regulatory sphere. But that's different to legislating antitrust, you know, legislation, that's really where I think the kind of punch can come because the question is which of those-- you know, which of those tech firms are going to be under the microscope and, you know, are they at genuine risk of splitting them up?
Honestly, we've had a number of calls with kind of tech public-policy people who have been somewhat sanguine about it, but there is a sense there that, you know, reality is that over a couple of years, I do think Democrats would push for more legislation. It's just what does that look like, and which firms are affected? We still don't know. We haven't been given a clear inkling from politicians, and ultimately it's those politicians who will make those decisions. So we've got to watch it really carefully, I think.
ZACK GUZMAN: And lastly, when we look at this stuff, I mean, there does seem to be the bigger question in terms of, you know, a mixed government here and having Republicans and Democrats waiting to see who controls the Senate. But the one factor to consider there would be Trump's push for infrastructure spending, which would likely get quite a bit of pushback here in terms of what he's pushing for and what Democrats are pushing for. In terms of probability breakdown on this, where are you seeing that pan out with depending on who wins the presidency and who takes Congress here? What are you seeing on the infrastructure-spending front?
STEPHANIE KELLY: So I think it's much more clear, right, if we parse out the three most likely outcomes, you know, a Biden clean sweep-- so that's with Democrats a majority in the Senate. That's an environment in which you'd expect infrastructure spending to be part and parcel. We know his policy proposals. We know what he wants to do. We know the Democrats back him on that. And so it's a fairly green infrastructure plan, so you can imagine the kind of sectors that do well in that regard.
If we then parse out the second option, which is that Biden wins but they don't get that Democrat majority in the Senate, as I said, that's an environment where I think basically nothing gets done, including infrastructure. The third, the most uncertain is what happens if Trump gets reelected with basically the same constituency as we have at the moment, right-- so Democrats a majority in the House, Republicans a majority in the Senate. And there I think one of the challenges that they've always had on the infrastructure space is that Republicans favor a kind of public-private approach and Democrats favor public spending on this, right?
And we know that President Trump isn't a traditional fiscal hawk. He's not a traditional fiscal conservative. He's kind of not minded when spending has gone up if it's allowed him to kind of pursue other means that he really wanted to. So I think that there's a decent chance of infrastructure spending at least being on the table.
However, we have to think about the Democrat reaction function here. Are they going to want to hand President Trump a win when he's just won re-election after a really bruising battle? I think that's the kind of environment we need to think about. It's not just about will Republicans be willing to, you know, sign, seal, and deliver something on infrastructure, but actually will Democrats? And I think Pelosi's quite a savvy operator when it comes to partisan politics, and I think she played her cards quite close to the chest on that.
AKIKO FUJITA: Stephanie Kelly, political economist at Aberdeen, good to talk to you today.