What the Georgia Election Means to the Market

The 2020 presidential election seemed never-ending, and the Georgia Senate runoff apparently can follow the same path, including a recount.

On the same day Congress was set to formalize Joe Biden’s victory, despite allegations of fraud by President Donald Trump and total chaos in Washington, the country and the markets were closely following the vote-counting in the Southern state, a dual race that will determine the Senate control and also shape legislative decisions in the coming years.

The two runoffs have defined which party will control the Senate – Democrats already control the House.

With both Democratic candidates winning in Georgia, their party will take back Senate control from Republicans with a slim majority because each party would have 50 seats. Vice-president-elect Kamala Harris could break ties in the chamber.

It would be the first unified control by Democrats since President Barack Obama took office in January 2009.

At the time this article was written,  the Associated Press has called both races in favor of the Democratic candidates.  

But what does it mean to the markets?

A rebalancing. Some stocks should have a better performance than others with the Biden administration having the support of both chambers.

This Tuesday, the Dow closed 1.4% up, reaching a new record, and the S&P 500 rose 0.6% after hitting an intraday record. On the other hand, the Nasdaq Composite lost 0.6%.

Ahead of the elections, most on Wall Street were expecting a different direction in the market in case Democrat candidates were leading.

For instance, the Oppenheimer investment bank predicted the S&P 500 could lose between 6% to 10% with a double Democrat victory.

This is because, in general, investors see that Democrats in control of the House and the Senate means more financial aid to the economy, with more fiscal stimulus and infrastructure spending.

Financial and industrial stocks went up, and tech companies went south because a Democratic administration is expected to have more antitrust actions, more regulation, and higher taxes.

Some economists project that under a House and Senate controlled by Democrats, another trillion dollars in relief packages can be approved to support individuals, families, businesses, and local governments, helping the economy recover from the worst economic downturn since the Second World War.

“We assume an additional $1 trillion of stimulus in the next few months…This will close the output gap roughly 4-6 quarters” faster than expected, analysts from Jefferies wrote. Analysts from Evercore ISI said they expected perhaps $2 trillion in new proposals.

“2021 GDP estimates, currently at just 4%, will continue to rise; the right tail is likely to come up as additional fiscal relief comes into play,” Neil Dutta, Renaissance Macro Research’s head of U.S. economics, said in an email.

Others were more cautious, saying that even if Democrats win both seats in Georgia, the slim majority will not easily allow the Biden administration to have full support of Congress easily.

“Even if the Democrats win two seats, which would give them the Senate in a 50-50 tie, there are a couple of Democrats who are quite moderate — you’ve got Joe Manchin of West Virginia, you’ve got Jon Tester of Montana,” Greg Valliere, AGF chief U.S. policy strategist, told Yahoo Finance. “ Those two moderate Democrats, I think will not go along with everything the Democrats want if they control the Senate. So no matter how you slice it, I think you’re looking at a pretty centrist environment for the financial market.”