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The new year has been greeted with euphoria on the stock markets. Major indices such as the Dow Jones and the DAX reached new record highs in the very first week of trading. The high spirits were triggered by the victory of the Democrats in the Senate run-off elections in Georgia. This means that the Democratic Party now has a narrow majority in both chambers of Congress. The financial markets are celebrating this constellation, as the way should now be clear for the trillion-euro economic stimulus packages that have been announced. The prospects of significantly higher government spending and consequently rising US budget deficits have also weakened the US dollar. The emerging markets in particular are benefiting from this, as a devaluation of the dollar makes it easier for companies and governments from emerging markets to service their international debt.
However, the economic policy agenda of the US Democrats also includes higher corporate taxes and stricter regulations. Large US technology stocks would be particularly affected by more regulation. Due to the huge market capitalization of the tech sector, price losses in this area could send the overall stock market into a sharp correction. Moreover, US President-elect Biden has repeatedly announced that he will take much more decisive action in the fight against the Covid 19 pandemic. If the new US administration adopts similarly strict lockdowns as in Europe in the process, this would be a severe damper on the current euphoria on the stock markets.
The storming of the Capitol by radical Trump supporters during the official nomination of Joe Biden as the winner of the US presidential election by Congress on January 6 will go down in history as the low point of Donald Trump's populist presidency. Since Trump will remain in the public eye after losing political power and can count on the support of his supporters, "Trumpism" is likely to continue to play a role as a disruptive factor in US political life. In the worst case, violent actions threaten from the militant part of the movement, further destabilizing the US. Investors would then be forced to rethink their fundamental stance on US assets.