A blue wave on Election Day may unleash $2.5 trillion in stimulus, Goldman Sachs says

Break out those shovels, picks and the debit cards if a blue wave of Democrats washes into D.C. come Election Day.

Goldman Sachs said Monday in a new note that a blue wave could lead to a whopping $2.5 trillion new stimulus plan. “This would likely include a stimulus package in Q1, followed by infrastructure and climate legislation. In this scenario, we would expect legislation expanding health and other benefits, financed by tax increases, to pass in Q3,” explained Goldman’s Jan Hatzius.

Hatzius further tossed his hat into the debate on whether presidential hopeful Joe Biden’s proposed tax hikes on corporations and those earning more than $400,000 a year would help or hurt the economy. “We recently analyzed the implications of a fiscal program similar to the Biden campaign proposals and found that the boost to growth from fiscal stimulus would outweigh the negative effects of tax increases, particularly in light of the fact that the increased tax revenue would go to fund new spending.” Hatzius added.

Some 15 days until the election, stimulus talks between the Trump administration and Congress remain precarious at best.

Over the weekend, House of Representative Speaker Nancy Pelosi set a 48-hour deadline to pass a stimulus plan. House Democrats have been pushing for a plan north of $2 trillion, which Senate Republicans have rallied against as being too high. Senate Majority Leader Mitch McConnell plans to bring a $500 billion stimulus bill to vote this week.

The Trump administration has signaled a desire to sign off on a stimulus deal closer to $2 trillion in recent weeks with the president trailing Biden in the polls.

WASHINGTON, DC - OCTOBER 16: Stickers encouraging social distancing in response to the coronavirus pandemic are seen in the Senate subway of the U.S. Capitol on October 16, 2020 on Capitol Hill in Washington, DC. With less than three weeks before the November presidential elections, the Trump administration and House Speaker Nancy Pelosi are continuing their ongoing negotiations for a stimulus deal. (Photo by Sarah Silbiger/Getty Images)

Investors have lined up behind the notion of a blue wave leading to a robust stimulus plan within Biden’s first 100 days as president.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite are all flirting with record highs. Meantime, the Dow Jones Transportation Average touched a new high last week — its components such as Delta Air Lines (DAL), FedEx (FDX) and United Airlines (UAL) stand to benefit greatly amid a large stimulus plan. Ditto consumer discretionary companies like restaurant chain Dunkin’ Brands (DNKN) — its stock is on an eight-session winning streak, according to Yahoo Finance Premium data.

“From a market standpoint, the market fully expects that there will be stimulus by the end of the year, and that stimulus will be at least $1.5 trillion. Now whether it comes before November 3 or in the first week of December, that really isn’t that important to the market, as long as it does show up before year end. And the market is still confident about that so far,” said Sevens Report Research founder Tom Essaye on Yahoo Finance’s The First Trade.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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