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After weeks of buying and selling stocks with the expectation that Democrats would sweep through the White House and Congress in a “blue wave,” Wall Street investors wasted little time getting back to their traditional political stance: stagnation is good. .
On Wednesday, cloudy-eyed investors, traders, executives and analysts who had stayed up late at night following the election results predicted that Joseph R. Biden Jr. would likely achieve a presidential victory as long as the Republicans maintained their control. about the Senate and the Democrats. continued to occupy the house. The resulting divided government appeared to be good for business: Stock and bond prices rose sharply, and the S&P 500 closed up 2.2 percent.
Some investors and executives said that if Biden won, he would restore civility to the White House and draw more attention to issues such as racial injustice. At the same time, Republicans in the upper house, led by Majority Leader Mitch McConnell, could block parts of a liberal political agenda that Wall Street worries most, such as tax increases, health care reform and closer scrutiny of politics. power of giant tech companies.
“We can go to bed and not worry about what the president is going to do,” said Michael Novogratz, a former hedge fund manager. A Biden victory would mean more stable trade policy and less divisive rhetoric, he said. “And yet Biden won’t be able to raise taxes, you get the Mitch McConnell wives,” he said. “So it’s the best of both worlds.”
Entering Tuesday night, Novogratz, a Biden supporter hoping for a Democratic sweep, was betting that tech stocks would fall, but that the overall US market would profit. But around midnight, he said, he cut the size of his positions in half because the result looked so murky. He removed the rest of the exchange this morning.
The prospect of a divided government “removes investors’ fear of this highly progressive agenda that they generally do not support,” said Doug Rivelli, president of institutional brokerage Abel Noser in New York.
It could also give company executives a break, said Tim Ryan, president and senior partner at accounting firm PwC. “CEOs want the ability to control their destiny,” he said. A divided government allows them “to execute their strategy without losing the course of the right or the left.”
The S&P 500 had its biggest daily rise since early June when pension funds, endowments and other large investors began buying stocks that reflected their view of the emerging short-term political landscape.
Health insurers were some of the biggest winners: Cigna, Anthem and United Health rose more than 10 percent on the expectation that a Republican-controlled Senate would likely block important health care legislation as a “public option” to the health insurance that Mr. Biden continued to campaign for. Giant tech companies also posted sizable profits. Alphabet, Google’s parent company, which is the target of an antitrust lawsuit by the Justice Department, soared 6 percent. Amazon was up 6.3 percent. Microsoft was up 4.8 percent.
Many on Wall Street also expressed relief that with a divided government, Biden would be more likely to nominate moderate-minded officials to government agencies like the Treasury and the Securities and Exchange Commission that are central to the financial industry.
For months, investors had transacted based on opinion polls that suggested a Democratic sweep through Congress and the White House. That had raised hopes for a large fiscal stimulus package, which would help revive an economy reeling from the coronavirus pandemic.
Even though Biden’s platform included some proposals, such as tax increases on corporations, capital gains and wealthy individuals, that many on Wall Street viewed as potentially negative for stocks, analysts said investors were optimistic that a choosing “blue wave” would increase the probability. from the big boost in federal spending that investors have been crying out for.
But with expectations of such a boost now dampened, financial stocks mixed. Shares of major banks such as JPMorgan Chase, Bank of America and Wells Fargo fell as investors predicted there would be no short-term boost in economic activity to fuel their profitable loan and capital markets businesses. Shares in private equity firm Blackstone Group rose 5.7 percent and Apollo Management rose more than 3 percent, a sign of relief, perhaps, that changes in property taxes were less likely. investments.
Investors also cut their bets on infrastructure and clean energy stocks. Biden has offered a $ 2 trillion plan to increase clean energy use in transportation, electricity, and construction, but that seems less likely without a unified government.
Asphalt maker Vulcan Materials and heavy equipment rental company United Rentals, which were expected to be beneficiaries of a federal boom in highway construction, plunged 9.2 percent and 11 percent. Solar energy stocks, which have come to be seen as a barometer of the likelihood of Democrats taking control in Washington, also fell.
The anticipation that a Republican Senate would maintain tight control over government finances meant less enthusiasm for smaller businesses. The Russell 2000 Index of small-cap stocks, which tend to be more domestic-market-focused companies whose businesses are heavily dependent on activity in the United States, underperformed the larger stocks dramatically.
Investors in the bond markets seemed to have a similar opinion. US government bond yields fell, reflecting weakening outlooks for growth and inflation, key drivers of bond yields, as well as expectations that any economic stimulus boost from Washington it would be much smaller than expected under divided government, resulting in smaller and less federal deficits. loan.
Some analysts argued that the drop in government bond yields also reflects investors’ view that the Federal Reserve will be more likely to keep interest rates low for longer, without fiscal action to stimulate growth.
“Since fiscal policy is less generous than previously assumed, there is pressure for the Fed to do more,” wrote Aneta Markowska, chief economist at Jefferies, a stockbroker in New York.
David Gelles contributed reporting.
