Wall Street is cheering on the prospect of a divided government that would halt proposed tax hikes as the legendary green wave of Democracy that is supposed to sweep across the country does not seem to come to fruition.
The S&P 500 benchmark was up 2.2% at the start of Thursday after gaining 2.2% from the previous session. The index ended Wednesday, 1.73% below its all-time high.
While the race between President Trump and former Vice President Joe Biden is in equilibrium, Republicans can still survive big spending on the Democratic campaign in some key races. in the Senate and will likely maintain a majority in the House of Representatives while reducing House deficits.
According to David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research, the result is a clear message that the United States does not accept an extreme tendency to the left.
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“Voters said, no, sorry, although there’s a lot of support for people like Bernie Sanders and Elizabeth Warren, we don’t focus on green energy, massive income redistribution, capital taxation. , modern monetary theory and refinement he wrote. “That’s why the stock market, the heartbeat of capitalism, has responded to this electoral message – because it’s a message that speaks loud and clear, to the world and at home, that ‘we are a center-right nation, and never will be, under any circumstances. ”
The discussion of the so-called green wave will give Democrats control of the president and both houses of Congress, in the weeks leading up to the election, drawing the attention of Wall Street strategists, those who argue that such a result will bring a net benefit to stocks as the negative effect of a tax increase will be slightly offset by large fiscal spending.
Wall Street’s earlier stance was that a divided Congress would create the best market environment, leading to lower interest rates and less volatility.
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According to Matt Maley, a Boston-based market strategist, although divided government is “the main reason the market is so strong,” the growing possibility that a fiscal spending package will emerge. In the sketchy session of Congress also provided a boost. at Miller Tabak & Co.
The S&P 500 index fell 8.68% in three trading weeks before the election as investors worried about the possibility of a Democratic sweep and higher capital gains taxes.
Senate Majority Leader Mitch McConnell, R-Ky., Said after his election victory that he endorsed a fiscal package before the end of the year.
With another wave of COVID-19 infections spreading across the country as the weather gets colder, Maley believes it is “necessary” to have more money in US consumers’ wallets and the inability to do so. As such will have “very negative effects on our consumer-based economy. “
However, Rosenberg says reaching an agreement in the final weeks of the current session is still an uphill battle as McConnell and House of Representatives Speaker Nancy Pelosi, D-Calif., Are still far apart.
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“We will get stimulated; but not during the lame duck session, ”wrote Rosenberg. “It will happen, but not until February. And it will not be enough to fill the gaps in the economy.