Wall Street is supposed to hate uncertainty but as the fight over the presidential contest continues, investors couldn’t be happier.
If, as appears likely, Joe Biden wins, he will become the first president since George HW Bush to enter office without control of both the House and Senate – an outcome that indicates at least two years of legislative gridlock.
It’s a scenario Wall Street appears to love. One that may give Republicans in the Senate little incentive to enact a new, larger coronavirus stimulus package that Democrats have hoped for and the power to block tax increases, big spending programs and tougher regulations.
Stocks jumped again on Thursday, the first time since 1982 that the Dow and S&P 500 rose at least 1% on four straight sessions, giving the stock indices their biggest weekly gains since April, with the Dow up 7.1% week, the S&P 500 and Nasdaq up 7.4% and 9% in the week to date.
Oliver Jones, senior markets economist at Capital Economics, told the Guardian: “There’s definitely some relief that things like tougher tax policy, tougher corporate reforms look to be off the table without Democrats having more control over Congress.
“Essentially, it’s going to look more like a continuation of the status quo, which is the outcome favoured by most firms,” Jones added.
Brad McMillan, chief investment officer at Commonwealth Financial Network, attributed some of the gains to the election’s smooth running and, notwithstanding legal challenges, the likelihood of an imminent outcome.
Looking forward, McMillan told the Guardian, markets were encouraged by prospects that a Biden administration’s more progressive, high spending proposals are less likely to get through a politically split legislature.
“Biden’s economic plan included substantial new corporate taxes and capital gains taxes, all of which would have been very disruptive to the market,” McMillan said. “The risks from a blue wave and a Green New Deal are now off the table.”
Wharton professor of finance Jeremy Siegel also welcomed the result, even as the final outcome of the presidential election remained unresolved. “Truthfully that combination is excellent for the economy and it’s excellent for the markets,” Siegel told CNBC on Wednesday
Market enthusiasm for a split government has historical roots going back decades. In 2018, after voters handed control of the lower chamber to Democrats in the midterm elections, markets soared.
“The better-performing periods are periods where the houses were split in terms of leadership,” financial adviser Mellody Hobson noted at the time.
Since Tuesday, markets have also been buoyed by the prospect of government infrastructure spending that could also pump billions of taxpayer dollars into an overhaul of the nation’s energy and transportation systems.
For big tech, which is facing antitrust investigations under the Trump administration, the political scenario could also be rosy. Ahead of the election, FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks, in particular, showed jitters after months of impressive pandemic gains.
“The Street appears to have gotten the ‘Goldilocks election outcome’ for tech stocks with no ‘blue wave’ expected (Senate staying red) and a likely Biden White House now on the horizon,” said Dan Ives of Wedbush Securities in an investors note on Thursday.
“With the Republicans likely to control the Senate, the chances of major legislative changes to antitrust law now is off the table in the eyes of investors which posed the biggest risks to tech stalwarts with a ripple impact across the sector,” Ives added.
Ives said the likely election outcome was a “green light to buy tech stocks” and predicted that big tech stocks could rally another 10% to 15% into year-end. “We continue to be bullish on owning the secular growth stories for 2021,” he wrote.
Source: Elections - theguardian.com
