Analysts believe that the Senate will be more important in determining the winners and losers in markets given its ability to advance or block the next president’s agenda, according to Bloomberg. The analysts use various scenarios to determine how the control of the Senate could impact the financial markets:
- Stimulus and Infrastructure
- The elections would end the stalemate over the proposed $2 trillion packages, and a Democratic majority will pave the way for the passage of the Senate’s proposal.
- If control of Congress and White House is split, policy logjams may overstay, threatening markets.
- Taxes
- Analysts expect Biden’s proposed tax rises to be overblown and unlikely, given the current pandemic.
- Most Democratic critics of Republican senators are moderates and prefer deficit spending rather than tax rises and will not vote to raise taxes on individuals and corporations.
- Filibuster Rules
- A democratic majority could change the chamber’s filibuster rules that would allow senators to pass legislation by a simple majority rather than the 60 votes required to end filibusters.
- Biden and Democrat initiatives will sail through if filibuster rules are eliminated.
- Pharma and Healthcare
- The pharmaceutical industry cares more about who controls the Senate rather than the white house.
- A Democrat-controlled Congress that ends filibuster would approve Biden-backed legislations such as negotiating for Medicare drug prices, potentially reducing drug spending by $448 billion over ten years.
- Energy Sector
- Trump’s win and the Republican-controlled Senate could benefit oil and gas stocks due to friendly fossil fuel industry policies.
- Biden’s victory and Democratically-controlled Senate could boost clean energy companies’ shares due to his policy focus on net-zero emissions.
- Under Trump or Biden’s win, more power of moderates may check or limit either policy.
- Treasuries and the Dollar
- A win by Biden and Democrat control would lead to a steeper yield curve, higher inflation expectations, and weaker dollar amid a rise in infrastructure and climate program spending.
- A Trump and Republican win would re-flatten the yield curve and generate dollar gains due to his “America First” policies.
- A Biden win and split Congress could see the yield curve flattening.
- Disputed Results
- The potential for Senate election results being disputed would heighten uncertainty and reduce growth since who controls the chamber will not be known immediately after elections.
U.S. stocks and currency are declining today. SPY is down 1.04%, QQQ: NASDAQ is down 2.54%, S&P 500 is down 1.21%, EURUSD is up 0.04%
