Investors focus on undecided Senate as Biden edges in on presidency
Send a link to a friend
[November 07, 2020] By
David Randall and Herbert Lash
NEW YORK (Reuters) - As Democratic nominee
Joe Biden edges closer to claiming the presidency, investors are focused
on the still-undecided race for control of the Senate and the potential
consequences for taxes, regulation and the outlook for more stimulus.
The benchmark S&P 500 has jumped nearly 4% since Election Day, driven in
part by expectations that divided control over Congress will make it
unlikely that a President Biden could pass his calls to increase
corporate and capital gains tax rates.
The S&P 500 <.SPX>dipped 0.2% in afternoon trading on Friday, while
yields on benchmark 10-year Treasuries <US10YT=RR> rose to 0.82%, their
highest levels since before the Nov. 3 election.
Biden took the lead over President Donald Trump in the battleground
states of Pennsylvania and Georgia for the first time on Friday, putting
him on the verge of winning the White House.
However, Georgia appears set for run-off races in January to determine
its two Senate seats. Biden's move ahead in Georgia focused some
investor attention on chances that the Democrats could have more sway in
the Senate. If they won those two run-offs it would give them a tie in
the Senate and give Kamala Harris a deciding vote.
Two other Senate races remain undecided, though Republican Senators Thom
Tillis of North Carolina and Dan Sullivan of Alaska are leading in those
contests.
“There is some concern with regards to if Biden creeps ahead or wins
Georgia, then there is chance that those seats will follow. That's what
people are reading into this. They're saying, 'OK, if there is this kind
of momentum for Democrats, maybe the Senate (control) isn't over yet.'
There’s a little bit of hesitation," said Yousef Abbasi, global market
strategist at StoneX Group Inc.
Justin Hoogendoorn, head Of Fixed Income Strategy at Piper Sandler in
Chicago, said "even if (Democrats) capture one Senate seat, it just
becomes more plausible to push some legislation through. The closer they
are to that, the more plausible.”
Unsettled control of Washington will likely weigh on markets as the
United States continues to post record daily coronavirus case counts.
"If it's contested, it adds a little bit of uncertainty" to markets
after investors began pricing in a divided government, said Scott Brown,
chief economist at Raymond James.
[to top of second column] |
The boot on the statue of George Washington, the first president of
the United States, is seen across from the New York Stock Exchange
(NYSE) following Election Day in Manhattan, New York City, U.S.,
November 4, 2020. REUTERS/Andrew Kelly
Delays in the vote count also increase the risk of legal challenges, leaving
investors in limbo, said Simon Harvey, currency analyst at broker Monex Europe.
"I think the big risks to markets now is if this isn't wrapped up swiftly - say
by Monday- especially considering the level of traction a Biden presidency has
gained over the course of the day," he said. "Any lack of clarity over the
result before Monday suggests markets will have to brace for a truly contested
election with a series of court rulings."
Still, despite the uncertainty, expectations for near-term market volatility
have declined. The Cboe Volatility Index <.VIX> has fallen more than 11 points
since last Friday, on track for the largest weekly decline since early April.
VIX futures have also dropped broadly.
Few investors are calling for a deep decline in stocks, buoyed in large part by
unprecedented levels of financial support from the Federal Reserve. The central
bank said Thursday that it will do whatever it can in the coming months to
support the U.S. economy.
It created the fewest jobs in five months in October while the number of
part-time workers increased, the clearest evidence yet that the recovery from
the pandemic recession was slowing as new COVID-19 cases explode.
Some investors are starting to wade back into stocks that would benefit from a
Democratic sweep of Washington. Clean energy exchange-traded funds jumped more
than 1.1% in early trading Friday, while technology stocks - seen as more likely
to face stricter regulations and more tax-motivated selling if the Senate flips
to Democratic control - slipped 0.5%.
"Now the focus is shifting from the president to Georgia and the Senate because
that is really going to define what happens next," said Ken Polcari, managing
partner at Kace Capital Advisors. "But if Biden gets in and the Senate flips,
then we are back to the sweep."
(Additional reporting by Herb Lash, Ross Kerber, Chuck Mikolajczak, Saqib Ahmed
and April Joyner; Writing by David Randall; Editing by Megan Davies and Dan
Grebler)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |