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- Stocks are soaring higher in months even though the US presidential race is still up in the air.
- TThat is because the most important electoral result has already emerged.
- A Republican-controlled Senate could block the tax increases and regulations sought by the Democrats.
- Senate Majority Leader Mitch McConnell said Wednesday his goal was to pass a smaller stimulus bill before the new year.
- Visit the Business Insider home page for more stories.
For equity investors, the most important American election outcome has already materialized.
Wall Street banks and pollsters largely expected a blue wave on Election Day. A Democratic-controlled government is likely to pass massive fiscal stimulus early next year to revitalize the nation’s economic recovery.
But that didn’t happen, as Republicans won several key Senate seats. While some races are too early to call, Democrats are unlikely to get the sweep of Congress they hoped for.
Rather than mourn the death of an early stimulus deal, investors found new reason to be optimistic. Merchants had been preparing for a Democratic-controlled government to raise corporate taxes and regulate major industries, policies that would likely reduce corporate profits. If Republicans maintain control of the Senate, they are prepared to block those efforts.
It’s also “hard to imagine” that Senate Majority Leader Mitch McConnell will reverse the Trump administration’s tax cuts, Ralph Schlosstein, Evercore co-chief executive officer, said Wednesday. Lower rates boosted corporate earnings and helped fuel the longest bull market in history.
Read more: 3 veteran investors share where to invest now to build resilient long-term portfolios that win even if elections produce stagnant government
That newfound optimism helped drive the S&P 500’s biggest one-day gain since June on Wednesday, when healthcare and tech giants emerged as the specter of Democratic-led regulation faded. The rally lasted through Thursday, with the same growth favorites pushing the major indices higher.
The legislative deadlock that will emerge in the 117th Congress would not only help those who fear higher taxes and stricter regulations. McConnell opened the door to another aid package Wednesday, saying the new aid should be approved before the end of the year. He also hinted that he would support additional aid for state and local governments, a sticking point between the parties that hampered talks before the elections.
“Hopefully the partisan passions that prevented us from making another rescue package diminish with the elections,” he said.
With daily new cases of coronavirus reaching record levels and the pace of economic recovery slowing, negotiations are likely to be more urgent. A short-term deal would at least somewhat appease those who expect a blue wave to produce new stimulus.
Read more: Warren Buffett’s Berkshire Hathaway went from extreme caution to a series of deals in 6 months. We asked a group of experts to analyze your change strategy
Whether investors expect Joe Biden to maintain his lead or fall behind President Donald Trump in the lengthy vote-counting process, they can rest assured that “the most controversial political initiatives by either side are off the table. for at least two years, “Steven. Ricchiuto, chief US economist at Mizuho, said Wednesday.
At least for the market’s medium-term outlook, “the picture hasn’t really changed,” Mark Haefele, chief investment officer at UBS, said Wednesday. “It’s rare that a choice matters so much in itself because of what the markets are doing in the global economy as a whole.”
Now read more market coverage from Markets Insider and Business Insider:
An advisor to the world’s largest wealth manager discusses why a Biden win and a divided Congress is the best long-term outcome for markets, and says investors should look to these 4 subsectors for continued gains.
General Motors jumps 7% after third quarter earnings doubled analyst expectations
Weekly jobless claims in the US hit 751,000, beating economists’ forecasts as the labor market recovery slows
