On the heels of what was a wild Election Day 2020 that concluded without a winner, the stock market is surging. As of this writing, the Dow Jones is up 2.4% on the day, while the S&P 500 is up roughly 3% and the Nasdaq is up 4.1%.
Those are enormous rallies.
And they are happening despite there currently being no clear winner in the 2020 U.S. presidential election — an outcome that many strategists and traders thought would be a “worst case scenario” for the markets.
So why are the markets rallying huge after Election Day 2020?
Because Democrats failed to flip the Senate, meaning the once likely “Blue Wave” across Washington will not happen, and many of the sweeping changes that may have come with that Blue Wave — like higher corporate taxes and stricter big tech regulation — are unlikely to materialize anytime soon.
That, of course, is bullish for the stock market.
Here’s a deeper look.
No Blue Wave
Heading into Election Day 2020, pollsters and betting markets had pegged the base case as being a Blue Wave across Washington — a decisive victory for former Vice President Joe Biden, followed by Democrats potentially winning more seats in the House and flipping the Senate.
In that Blue Wave scenario, Biden would’ve easily and quickly enacted many of his sweeping changes, some which are not so business friendly, like hiking the corporate tax rate and bringing the hammer down on big tech companies like Facebook (NASDAQ:FB) and Amazon (NADSAQ:AMZN).
But that Blue Wave is not happening. While it looks like Biden will win the U.S. Presidential race (betting markets currently have his odds north of 80%), Democrats actually lost some seats in the House and failed to flip the Senate. Therefore, even if Biden does win, we will have a divided government — and in a divided government, it will be tougher for Biden to enact sweeping reform.
In other words, the prospects for higher taxes and stricter big tech regulation significantly diminished on Election Day 2020 when Democrats failed to flip the Senate.
That’s why the stock market is surging today. It’s why the tech-heavy Nasdaq is healthily outperforming the S&P 500 and Dow, and why big tech giants like FB stock and AMZN stock are both up more than 5%.
Does the Market Even Care About the President?
Of course, the natural question to ask here is: Will the stock market sustain this rally once the next U.S. President is announced? Will a Trump or Biden victory help or hurt stocks?
To be frank, it looks like the stock market doesn’t really care who wins the White House.
Future contracts surged late on Election Day 2020 once it became clear that the Democrats weren’t going to flip the Senate. At the time, the betting markets gave Trump a 75% chance of winning the U.S. Presidential Election. Since then, more mail-in votes in urban centers have been counted, several states have turned blue, and betting markets now give Biden an 80% chance of winning the U.S. Presidential Election.
Despite the huge flip in betting market odds, the stock market has kept on rallying — mostly because it has become clearer and clearer that Democrats won’t flip the Senate.
Get the point?
The stock market is pretty strongly saying that it doesn’t care who wins the White House anymore. Wall Street got what it wanted — no Blue Wave and no tax hikes — and now sees Trump versus Biden as six of one, half a dozen of the other.
Bottom Line on the Stock Market
The stock market is surging after Election Day 2020 because Democrats didn’t flip the Senate, and therefore, the prospect of sweeping anti-business reform is unlikely.
Going forward, the outlook for stocks is bullish — regardless of who actually ends up winning the White House.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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