Business & Investment

Political concerns shook the market on Monday and may not go away soon

Voters are lined up to vote on the first day of early voting in the US Senate final vote at the Gwinnett Fairgrounds on December 14, 2020 in Atlanta, Georgia.

Tami Chapel | AFP | Getty Images

Concerns over Tuesday’s Senate final vote have fueled the New Year’s plunge, and politics could continue to shake stock markets after the results are known.

Policy strategists say results can take days if votes are close to expectations.The· Senate 2 seats final vote Is the final deciding factor in the 2020 elections, and it is the control of the US Senate that is at stake. Wall Street widely hopes that at least one Republican will win while continuing to control the GOP.

stock Significant decline On the first trading day of the year, the S & P 500 and the Dow hit record highs in early trading before the sharp fall.

According to traders, there were multiple sources of selling, including pandemic concerns, a new closure in the UK, delayed vaccine distribution in the United States, political risks, and concerns that the Democratic Party could win in Georgia. It was.

Senator David Perdue has been challenged by Democrat Jon Ossoff, and Republican Senator Kelly Loeffler is playing against Democrat Rafael Warnock. Georgia law required a final vote between two leading candidates in each seat, as none of the candidates received more than 50% of the votes in the November 3 elections.

There is also another unusual political event overhanging the market.

Formal certification of Electoral College votes is usually a proformer, but on Wednesday some Republicans plan to challenge the results of some states, which will be discussed and voted in both parliaments. You may be forced to.

After all, it is hoped that President-elect Joe Biden’s victory will be proven, but disagreements can add to tension.

Julian Emmanuel, Head of Equity and Derivatives Strategy at BTIG, said: “It’s not surprising to see this setback.” The question is, will it trigger further pullbacks in the next few days? … the market is democratic in the Senate. I’m worried that control will show up as a risk-off. Overbought … It’s no surprise that it falls by 10% to 15% in the short term. “

A concern in the stock market is that if the Democratic Party wins two seats in the Senate, each party will win 50 seats, but Vice President Kamala Harris will cast the same number of votes after taking office. Biden will then be able to push much of his agenda, including capital gains and corporate tax hikes.

“I think the market was priced by the fact that at least one of these two seats went to the Republican Party,” said Jeffrey Solomon, CEO of Cowen, on CNBC.Squawk on the Street.. “If the administration and the legislature are not in the same camp, the market definitely likes it. If it turns out that two Democrats have been elected, there could be some reaction to it. .. I think you’ll see a lot of fiscal spending regardless of who controls the House and Senate. Infrastructure bill. “

Solomon said he expected the sale to create an opportunity to buy.

Emmanuel agrees and he expects S & P 500 After an early sale, it will be 4,000 this year.

“On December 31st we recognized all of this as a risk and most of December we were aware of it all, but basically people wanted to invest fully towards the end of the year.” He said. “The market tends to be unresponsive until you look straight at it, and that’s what it is today,” he said.

Quincy Crosby, chief market strategist at Prudential Financial, said investors were more concerned about Monday’s two Georgia races as the betting market began to show improved Democratic odds. “It’s part of the sold out,” she said.

Biden’s disability

Analysts say there may be bigger sellouts if the Democrats win, but there may also be opportunities for larger and faster spending packages. It will boost the economy and the stock market.

JP Morgan strategists said the outflow in Georgia is a wildcard in the market, and if the Democratic Party wins, there will be ripples in the financial markets as a whole.

“If you’re surprised, your kneeling reaction is likely to be depressed. [the dollar] Bond yield bounce. This can put pressure on the entire market in the very short term, but it can also facilitate the next stage of value rotation, “says the strategist.

Fundstrat’s Washington policy analyst, Tom Brock, said that even if the Democratic Party wins, much of Biden’s policy is unlikely to be implemented. He said he might support Republicans on some issues, like Democrats in Arizona and Senator Joe Manchin, a conservative Democrat in West Virginia.

“I don’t think the Democratic Party will take control, but I don’t think it will increase the capital gains rate. This will make the process of confirmation between the Cabinet and judges easier. I think it will make it much easier to bail out Covid.” He said.

The key to the election is turnout. “It seems that moderate Republicans went and voted for Biden, but then returned home and voted for Republicans,” Brock said.

Evercore strategists have traditionally said that parties that have lost the White House are more willing to vote in the January finals. But they said Democrats could have voted early, and Republicans could be hurt by an attack on President Donald Trump’s state leaders to prove Biden’s victory. Stated.

“If the Democratic Party wipes out, investors will have stronger internal market rotations as the government revise prices for higher fiscal / some taxes / more green / more regulatory consequences than the split Biden. Is expected. ”Written by an Evercore analyst.

Threat of challenge

Although not expected to be a major market event, political strategists say the unprecedented challenge of Republicans and senators voting for the electoral college on Thursday could cause further problems in the future. I am.

Brock said the Democratic Party could launch a spiral to challenge the next election that the Republican Party won.Long-term problems may arise for the United States if friction continues and parties continue to attempt to undermine each other’s ability to govern.

“The stability of the US government-to-government transition, which is the pillar of the dollar as a reserve currency, has created a problem that never existed before,” he said.

Washington policy analyst Brian Gardner of Stiffel believes the challenge is just a “fuss,” but said he was more concerned if hostilities continued and escalated.

“I don’t think there is any short-term or medium-term market risk,” Gardner said.

“I think this is generally a political turmoil. The bigger question is whether it points to another turning point in US politics that makes governance impossible, or at least I have been since World War II. It’s harder than what we’re used to, “Gardner said. “If the answer is yes, then there is a market risk that the United States will be out of control in the long run of the federal government.”

Gardner said there was a significant risk if it was a result, but he expects the event to be a temporary event.

–Michael Bloom contributed to this reportt

Political concerns shook the market on Monday and may not go away soon Political concerns shook the market on Monday and may not go away soon

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