With Democrats on the verge of having control of the Senate, we wanted to provide you with some brief market and economic observations. The stock market is generally higher today as it digests the Georgia Senate runoff races. The two races each look as though they have been or could be won by the Democratic candidate. This outcome would mean a 50/50 split Senate, essentially giving Democrats control by virtue of incoming Vice President Kamala Harris who would have the tie breaking vote.
Investor concerns about unified government appear to have subsided and been replaced by anticipation of additional COVID relief aid and stimulus spending, including a possible infrastructure package. A revenue enhancement package, which is code for tax increases, is likely now part of the Biden administration’s agenda as well, with higher rates expected for businesses and the highest earners.
While control of Congress makes it easier to pass legislation, passing legislation is never easy and so there remains much ground to cover before any of these items become reality. More stimulus and higher taxes appear to be the general direction things will head and, for now, the market seems to be voting in favor of additional stimulus for the economy.
Regardless of party control, with vaccine relief on the horizon and further deficit spending almost certain, there are a few themes emerging from the current state of the markets that bear close attention.
- Better potential relative performance for value stocks following an extended period of growth stock outperformance
- Better potential relative performance for small cap stocks following an extended period of large cap outperformance
- Better potential relative performance for international stocks following an extended period of U.S. outperformance
- A potentially weaker dollar driven by continued deficit spending, which could be inflationary over the intermediate to longer-term
We discuss these themes and many others in regular research meetings at Ancora. Under any scenario, we remain of the mindset that the investor who stays optimistic about the future, seeks opportunity for return through a diversified portfolio and focuses on owning high quality assets, will continue to have the highest probability of achieving long-term success.
We look forward to further discussions with you individually about your unique portfolio objectives and planning needs as more information about policy changes becomes available. We wish all of you a safe, prosperous and happy New Year.