What the Democratic ‘Blue Wave’ lacks for the stock market


US stocks rose on Wednesday despite uncertainty surrounding the outcome of the 2020 presidential election race.

And although investors abhor uncertainty, they appeared to respond surprisingly positively to the apparent lack of the so-called “Blue Wave”, which would have meant winning the White House and Congress.

For the week, market participants seemed to think that a Biden presidential victory, combined with Democrats holding a majority in the Senate, would provide the best scenario for additional financial relief measures to prevent the COVID-19 epidemic that damaged the economy. Help to overcome it. And worker.

However, Democrats have thus gained only one seat in the Senate and are unlikely to take the four additional seats required for a majority of 51 seats. According to the Associated Press, the previous Czech Democrat had 45 seats, while the GOP had 47 seats.

Investors are beginning to believe whether he should win Biden, should he participate in the White House race, be a sort of gridlock jointly with a divided Congress that plans for former vice presidents and Trump to tougher rules on technology companies May prevent rollback of. 2017 tax deduction.

“This is basically a frozen government for now,” said Kala Cashin, director of floor operations at UBS during a CNBC Wednesday interview.

Peter Tachier, head of market strategy at Academy Securities, said the lack of a “blue wave” is “noticeable,” because in theory it would affect Biden if he becomes president, as someone wild around the country for his ideas Was not supported. , So they may have to rule more than the previously thought center – if they are declared winners, ”he wrote in a Wednesday research paper.

Tachir said many people, including himself, may be underestimated “for example, fear of potentially high capital gains taxes affecting the Nasdaq 100.”

Indeed, the Nasdaq-100 futures rose overnight on election day, while the Nasdaq Composite Comp,
+ 3.85%
S&P 500 Index SPX, trading 3.9% higher on Wednesday
+ 2.20%
2.9% and the Dow Jones Industrial Average was DJIA,
+ 1.33%
Received 2.3% on last check.

“With the Republican Senate being able to prevent major changes to the tax code (corporate and individual), it has reduced risk for the market and is being priced (hass won versus knots),” Tachir wrote.

On top of this, analysts are still hopeful that another fiscal relief measure will eventually be passed by Congress, but it may not be as comprehensive.

In the email note Christopher Smart wrote, ‘The only conclusion is that the’ Blue Wave ‘has restarted before reaching the edge and the prospect of an incentive package is slim.’

Smart wrote that in 2000 Al Gore v. George W. A similar presidential vote count, which occurred with Bush, could lead to a “long-term loss of confidence in American institutions” that could “prove permanent.”

“In the near term, however, a larger fiscal package is more likely because both candidates have pledged to push for more money,” Smart wrote.

“In many ways, the Senate result was the most important for equity markets rather than the presidential election”, concludes a note from Geoffreys, chaired by Sean Derby, chief equity strategist.

With a divided Congress, even if Biden wins, “he will be unable to spend what he wants”, wrote Etsy Dweck, head of global market strategy at Natixis Investment Managers.

“This said, if we stay close to a status quo, we can get the excitement soon, although the figure will be small (close to USD1.5 trillion, or less),” the strategist wrote.

The presidential race may still take days or weeks before finally all the votes are up, but on Wednesday the indicator suggested that Biden could dominate Trump in stiff competition.

Nevertheless, the failure to achieve the “blue wave” raises questions about the projections and elections leading up to elections that point to a more decisive victory for Democrats.

The Jefferies team wrote, “Polls have not matched voting intentions.”

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