After weeks of buying and selling shares in the expectation that Democrats would sweep both the White House and Congress in a “green wave”, Wall Street investors took little time to get back into the mainstream. Their traditional rule: Gridlock is good.
On Wednesday, blurred investors, traders, executives and analysts who stayed up until hours monitoring the results predicted that Joseph R. Biden Jr was likely Winning the presidency while the Republicans still hold their ground with the Senate and Democrats. continues to hold House. As a result, divided government seems to be good for business: Stock and bond prices surged, with the S&P 500 index closing up 2.2%.
Some investors and executives say that if Mr. Biden wins, it will restore courtesy to the White House and draw more attention to issues like racial injustice. At the same time, Senate Republicans, led by the majority leader, Mitch McConnell, will be able to block the parts of the liberal policy agenda that most worry Wall Street, such as rising taxes, healthcare reform and tighter scrutiny of the power of tech giants.
“We can go to bed and not worry about what the president is going to do,” said Michael Novogratz, former hedge fund manager. Mr. Biden’s victory will mean more stable trade policy and less divisive, he said. “However, Biden won’t be able to raise taxes – you will be handcuffed by Mitch McConnell,” he said. “So that’s the best of both worlds.”
Entering Tuesday night, Mr. Novogratz, a Biden supporter who had expected a Democratic sweep, had bet that tech stocks would fall, but that America’s broader market would rise. But around midnight, he said, he had halved his position because the results looked very muddy. He did the rest of the deal this morning.
Doug Rivelli, president of New York-based institutional brokerage Abel Noser, said the prospect of a divided government “did not dispel investors’ fears about the high-progress agenda. which they generally do not support.
Tim Ryan, chairman and senior partner at accounting firm PwC, said it could also give company executives a bit of breathing space. “CEOs want to be able to control their own destiny,” he said. A divided government allows them to “execute their strategy without deviating from the right or the left”.
The S&P 500 Index saw its biggest daily gain since the start of June as pension funds, fund funds and other major investors started buying stocks that reflected their views on the political landscape. to emerge in the short term.
Health insurers are some of the biggest: Cigna, Anthem and United Health all climbed more than 10% on expectation that the Republican-controlled Senate will most likely block care laws health insurance key, such as a “public choice” for health insurance Mr. Biden has campaigned. Tech giants also posted significant profits. Google’s parent Alphabet, which was the target of an antitrust lawsuit by the Justice Department, rose 6%. Amazon grew 6.3%. Microsoft rose 4.8%.
Many on Wall Street have also expressed relief that with a divided government, Mr. Biden is more likely to nominate moderate-minded officials to government agencies such as the Ministry of Finance and Central Securities and Exchange Commission of the financial industry.
For months, investors have been doing deals based on opinion polls that show a Democratic sweep of Congress and the White House. That has raised hopes for a major fiscal stimulus package that will help kick off an economy that is reeling from the coronavirus pandemic.
Although Mr. Biden’s background includes a number of proposals – such as tax increases on corporations, capital gains, and wealthy individuals – that many on Wall Street consider potentially negative to her. votes, analysts said investors are optimistic that a “green wave” election will increase the likelihood of the massive federal spending boost that investors have come to love.
But with the expectation of such a push now down, financial stocks have been mixed. Shares of major banks such as JPMorgan Chase, Bank of America and Wells Fargo fell as investors predicted there would be no short-term boost in economic activity to boost lending and marketing. their profitable school. Shares in private equity firm Blackstone Group rose 5.7% and Apollo Management rose more than 3% – a sign of relief, perhaps, that tax changes to investments are less likely to come. happening.
Investors also reduced their bets on clean energy and infrastructure stocks. Mr. Biden has come up with a $ 2 trillion plan to increase the use of clean energy in transport, electricity and construction, but that seems unlikely without a unified government.
Asphalt maker Vulcan Materials and heavy equipment rental company United Rentals – which are expected to be the beneficiaries of the federal road construction boom – fell 9.2% and 11%. Solar stocks, widely seen as a barometer for Democrats’ ability to take control in Washington, also fell.
Prediction that a Republican Senate will keep a tight government budget means less enthusiasm for smaller companies. The Russell 2000 index of small cap stocks – which tends to be more concentrated on domestic firms whose business is largely dependent on the United States – is significantly less than the gains in large stocks than.
Investors in the bond market seem to have a similar sentiment. Falling U.S. government bond yields, reflecting weak prospects for growth and inflation – key drivers of bond yields – as well as expectations that any economic stimulus from Washington will be small. much more than was expected under divided government, resulting in smaller deficits and less federal borrowing.
Some analysts argue that falling government bond yields also reflect investors’ views that the Federal Reserve will be more likely to keep interest rates lower for much longer, without Fiscal action to stimulate growth.
Aneta Markowska, chief economist at Jefferies, a broker in New York, writes: “With fiscal policy less generous than assumed, there is pressure for the Fed to do more.
David Gelles contributed reports.