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Election 2020: What now for the markets?

November 13, 2020

Friday, November 13th Update

The 2020 Election certainly lived up to its promise of chaos and confusion.  At this writing on Friday, November 13th, results are still pending in a dozen or more House seats, lawsuits have been filed in half a dozen closely contest states that were key to the outcome of the Presidential race, and BOTH Georgia Senate seats will have to wait for a runoff election on January 5th!  What we’ll attempt here, then, is simply a brief update on how the financial markets have reacted thus far and what could unfold over the next few weeks.

One Major Uncertainty off the Table = Markets Cheered… but maybe too soon?

As we noted in our most recent client letter, the consequence of a change in both the Presidency and the Senate in this election would very likely have been severe for our fundamental structure of Federal government and, in turn, the financial markets.  While making no attempt to be alarmist, Democrats had indicated clearly that their intent with control of the Presidency and Senate would have been to end the filibuster rule in the Senate, thereby clearing the way to both to add states (DC & Puerto Rico) to provide them a relatively permanent Democrat Senate majority and to add at least 4 new seats to the 9 on the Supreme Court and then fill each with Liberal justices, thereby creating a new Liberal-majority Supreme Court… and consider eliminating the Electoral College.

The Senate – at least initially – looked to be remaining with a Republican majority. With all of the Senate races called – except those 2 in Georgia – the Republicans hold a 50-48 lead in total Senate seats.  With both Georgia Senate seats currently held by Republican incumbents, Republicans – by the direction of the US stock markets since Election Day – are apparently anticipated to hold a 52-48 majority going into the next session of Congress. As a result…the financial markets exhaled in a major way. After putting in its worst week since the early Pandemic days of March last week1, the S&P 500 has gained 7.7% since the election while Dow has added 8.8% and the NASDAQ has jumped 7.3% as of today.1

All Clear? Invest More Now?

So why the immediately cheery and upbeat stock markets?  In a word – GRIDLOCK. This happens to be a word that the financial markets enjoy hearing because it implies that should Biden prevail with a Republican majority in the Senate, not nearly as much will change with tax rates, new regulations and the like.

But wait!  Those Georgia Senate races may not go as expected.  Some Democrats are actually now calling for people from outside Georgia to literally go there to establish residency before the January 5th election date to add Democrat votes!  In our opinion, the markets have NOT accounted for this possibility.  So stay in touch!  Many legal challenges and suspense ahead over the coming weeks…just know we’re always here for you, so please do give us a call anytime.

1 Google Finance

The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks.  Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
The views and opinion expressed here are of Jeff Watson and do not reflect the views and opinions of Avantax Wealth ManagementSM and it subsidiaries. These opinions are based on observations and research and are not intended to predict or depict performance of any investment. These views are as of the close of business on November 12, 2020 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.