Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bring you a variety of perspectives, I'll be talking about the intersection between U.S. public

policy and financial markets.

It's Wednesday, October 7th at 2 p.m. in New York.

For months, the market debate on the next U.S. fiscal stimulus has been framed in terms of whether or not

DC would act quickly. With one tweet the president provided a clear no to

that question. In that tweet he announced the White House would pull out of

negotiations with Democrats over key differences on state and local aid.

Instead, he would focus on trying to win the upcoming election to return to the negotiating table from a position of strength.

So should investors be concerned, After all Fed Chair Powell just

yesterday warned that without further stimulus the US economy could slip. We agree

this is a credible risk, but importantly there's still time before investors have to think differently about the trajectory of markets in 2021.

That's because our economists now see evidence that U.S. consumption can carry on longer without fiscal support given built up excess household savings.

This is good news, as there remain many viable political paths toward stimulus over the next few

months.

We see three out of the four most likely post-election outcomes delivering stimulus by early 2021.

The biggest potential stimulus could come in the Democratic sweep.

In this scenario, in addition to an upsized COVID-19 relief package,

we believe the plausible policy path is further fiscal expansion.

This is something we've detailed on this podcast before, but it boils down to the view that Democrats

enjoy legislative consensus around their spending agenda, but not around sufficient tax increases to fund it.

So for the moment, the Stalin stimulus isn't a reason to think differently about your market outlook.

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