by Scott Wren, Senior Global Market Strategist
- No states have certified their election results at this point, and the administration is aggressively pushing legal challenges of the vote.
- Whatever the outcome, we continue to believe there will be medical and economic improvements in the coming 12 months.
During last weekend, most of the major news networks called the presidential election in Joe Biden’s favor. But the current administration is not standing by and watching; it has filed multiple lawsuits related to what it considers to be voting irregularities of various types. And based on President Trump’s comments, the administration is dedicated to following through on these legal attempts in an effort to turn the election back to his benefit. Note that at the time of this writing, Georgia, North Carolina, and Alaska have not finished counting votes and states have not certified any results. Also note that this is more than one week after the election took place.
Of course, the S&P 500 and Dow Jones Industrial Average have traded to new all-time record highs this week as a 90% effectiveness rate announced for a vaccine being produced by a major U.S. pharmaceutical company helped push optimism that the end of the pandemic may finally be in sight on the horizon. The company stated that it believes it is possible to have Food and Drug Administration (FDA) approval for use by the end of this month. And stocks have also done well in recent weeks as investors continue to believe that a large stimulus package would be passed by Congress at some point in the coming months no matter who would win the presidency. In addition, post-election, the potential for a divided government, should the Republicans retain control of the Senate, has largely taken tax hikes off the table. No increase in the corporate tax rate will likely be a tailwind for earnings. Consumer spending could also get a boost because discretionary spending is meaningfully skewed toward high income earners. If these earners do not see their income tax rates rise, the economy would likely benefit, all else being equal. A big increase in regulation is also quite unlikely in this divided-government scenario.
The stock market has clearly taken all of this as a positive. Remember, just a few weeks ago and for months prior to that, the consensus of pollsters was calling for a “Blue Wave” with Democrats taking the presidency and the Senate while maintaining control of the House. We argued that in the month or so leading up to the election that the market’s focus was on a stimulus that would likely happen in the nearer term and not so worried about higher taxes and more regulation that might be a late 2021 or 2022 story. And the market’s underlying belief that a vaccine (or multiple vaccines) was right around the corner was the foundation for a positive outlook.
So for now, while some would say the presidential race is over, others would disagree. It is likely we won’t know for sure for several weeks, maybe longer, as legal challenges to the election work their way through the courts. But we still see equity market positives beyond the near-term haze.
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