Markets Cheer Election Outcome

Stocks continued their post-election rally today with gains of almost 2%. We have seen major market moves higher in tech and health care, but also rallies in bonds and bitcoin. Many of the moves appear to be a resetting of expectations as investors had anticipated a blue wave that didn’t occur. From the WSJ:

Investors’ anticipation of a divided government—which could make it more difficult to accomplish major legislative overhauls, including raising corporate taxes and regulating technology companies—has fueled sustained optimism on Wall Street this week.

The biggest market concern going into the election was the prospect for higher corporate taxes and higher capital gains taxes. However, there were stocks that declined following election results, including companies that would have benefited from a larger stimulus, as well as from an infrastructure package. We expect there still will be another stimulus package, but it will be smaller with the GOP controlling the Senate. About that…

There is a development today that has the potential to flip control of the Senate to the Democrats. It now appears both seats in Georgia will be going to a runoff in early January. If both of the Democratic candidates win, that would flip control of the Senate to the Democrats. From our standpoint it is premature to make adjustments to our investment allocations before we know the outcome of the runoffs.

It is worth mentioning that regardless of the election outcome the Federal Reserve will continue to keep interest rates at 0%. Also, coronavirus cases are still rising in the U.S. and Europe. In addition to the health consequences it also is a headwind to economic recovery, especially in Europe where many counties have reinstituted lockdowns.

As always, we will continue to monitor all developments.