Tuesday\u2019s U.S. Senate runoffs in Georgia will bring benefits and losses for stock investors, no matter who wins.<\/p>\n
The two Republican incumbents will face their Democratic challengers after none of them clinched majorities in November. If both Democrats win, their party will control Congress and the White House in 2021.<\/p>\n
An RBC survey of 75 institutional investors in December found that 88% believed the GOP will retain control of the Senate, with 56% saying that would be bullish or very bullish for stocks. Last week, Height Capital Markets cut its odds for a Republican win of at least one seat to a \u201cstraight tossup\u201d of 45% to 55%, citing early voting favoring the Democrats and \u201cRepublican dysfunction\u201d surrounding stimulus checks and the 2020 election results.<\/p>\n
\u201cThe scale and scope of fiscal policy in 2021 will be determined by the voters of Georgia,\u201d Cowen analyst Chris Krueger wrote in a late December note. If Democrats win both seats, President-elect Joe Biden\u2019s $3 trillion \u201cBuild Back Better Plan is in play. If not, $1 trillion is probably the ceiling,\u201d including a $300 billion highway bill, he said.<\/p>\n
Investors are going to get a mixed bag no matter what, according to Kristina Hooper, Invesco\u2019s Chief Global Market Strategist.<\/p>\n
\u201cIf both seats go to the Democratic party, that dramatically increases the chances of more stimulus,\u201d Hooper said by email. \u201cHowever, a Democratic sweep brings with it the potential for higher taxes.\u201d<\/p>\n
A Democrat-led Senate would help Biden\u2019s broader agenda and be positive for green energy and negative for traditional energy stocks, she said. Health-care providers would likely get a boost, while biotech and pharmaceutical companies could take a hit, given that Biden will try to strengthen the Affordable Care Act while targeting drug prices. Construction and materials would be set to gain with a greater likelihood of infrastructure stimulus, she said.<\/p>\n
A Democratic sweep would result in a \u201cpowerful internal market rotation\u201d as investors reposition for more government spending, some taxes, green policies and more regulation, according to Evercore ISI strategist Krishna Guha. If Republicans hold at least one seat — which is Guha\u2019s most likely scenario — then the last big hurdle of political uncertainty will have been cleared, giving investors a run at trading a vaccine-led recovery, backed by more government spending and very accommodative monetary policy, the strategist wrote in a note on Monday.<\/p>\n
The U.S. \u201cwill be a friendlier place\u201d for international trade, no matter who wins, which will help exports, John Augustine, Huntington Private Bank\u2019s chief investment officer, said in an interview. That would mean likely gains for industrial companies, banks, financial services firms, as well as auto maker<\/span>s and parts companies.<\/p>\n Amherst Pierpont Chief Economist Stephen Stanley foresees no tax hikes or big infrastructure spending whatever the outcome.<\/p>\n Stanley also predicted there would be no more stimulus if Republicans hold one of the Georgia seats and retain narrow control of the Senate, which he said is the \u201coutcome that financial markets are pricing in.\u201d If that\u2019s the case, \u201cwe have seen the last of the mega\u2010packages from Congress,\u201d he said.<\/p>\n Compass Point analyst Isaac Boltansky sees a \u201cmacro narrative split\u201d if the GOP holds the Senate, with a smaller stimulus effort, which would be negative for stocks, offset by unlikely tax increases, which would be positive.<\/p>\n In the event of a \u201csmall blue wave,\u201d he said stocks exposed to housing affordability would probably benefit, including manufactured-housing firm Sun Communities Inc., apartment real estate investment trust Mid-America Apartment Communities Inc., homebuilder D.R. Horton Inc. and mortgage insurer Essent Group Ltd.<\/p>\n Boltansky also sees potential that a strengthened Consumer Finance Protection Bureau would put pressure on overdrafts, small-dollar lending and credit bureaus, which might impact firms like Regions Financial Corp., OneMain Holdings Inc. and Equifax Inc. He said there may be discussion of financial transaction taxes, which could hurt companies such as Nasdaq Inc. and MarketAxess Holdings Inc., though those changes would face an \u201cuphill climb.\u201d<\/p>\n Even if Democrats win both seats, they would hold the slimmest of majorities — 50-50, with incoming Vice President Kamala Harris casting deciding vote. And while the party would control both chambers on Congress, the Democrats\u2019 edge in the House slipped to 10 seats, so they\u2019re also working with the barest of margins.<\/p>\n The outcome in Georgia is also likely to influence Biden\u2019s nominees for financial regulatory agencies, according to Bloomberg Intelligence. A \u201cRepublican-controlled Senate would likely oppose candidates overly unfriendly to the financial industry,\u201d analysts Elliott Stein and Nathan Dean wrote.<\/p>\n Dean also said that \u201cDemocratic wins may boost the chances of targeted tax hikes affecting technology companies while increasing broadband regulation. Consumer-financial companies could see faster implementation of new rules. Yet banks may potentially serve marijuana-inspired businesses faster.\u201d<\/p>\nNo Tax Increases<\/h3>\n
\u2018Small Blue Wave\u2019<\/h3>\n