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For markets, a Trump win, or a Biden win with a Republican Senate, offers nearly the same backdrop: a business-friendly underpinning.

November 06, 2020

Highlights

  • If uncertainty over legal challenges continues, investors may lose their patience, especially if protests escalate.
  • Analysts will remain on high alert to see if there’s a chance that the Senate turns even light blue.
  • The economy continues to heal, although more than 10 million Americans remain unemployed.

The voting is over and the ballots are being counted. On the morning of Nov. 6, former Vice President Biden is looking out and seeing a sign that says “270.” It’s within striking distance, but what he doesn’t see are any blue waves along the way. The only waves were in the markets, rejoicing the fact that a Biden presidency would be bound in scope by a Republican Senate intent on keeping taxes low across the board and taking back the presidency in 2024. Making waves, but not yet pointing to a tsunami, are a raft of legal challenges, and the extremely slight possibility that President Trump can capture another term with a win in a handful of still undecided states.

Within boarded up cities, protests are breaking out as both sides take their respective political stands. Should uncertainty over the direction and duration of the various lawsuits continue, investors may lose their patience, especially if protests escalate.

For markets, a Trump win, or a Biden win with a Republican Senate, offers nearly the same backdrop, that is, a business-friendly underpinning. On election night, as results were being tabulated, a report made its way throughout the financial community that election betting sites had flipped over to Trump. Within seconds, the yield on the 10-year U.S. Treasury pulled lower and Nasdaq futures climbed higher. This was the market’s way of deciphering what a Trump victory would mean—less fiscal stimulus, therefore less inflation, and less regulation for the mega technology companies, compared with blue wave scrutiny focused on tax changes and regulation. In addition, if economic growth prospects were more muted without a heavy dose of stimulus, the market’s instinctive reaction would be to flock toward the growth provided by technology shares.

And then, in a complete turnaround, prospects for Biden brightened by the next morning. But the market, seemingly convinced of a Biden victory, stayed the course with technology names leading the market higher. Treasury yields similarly held back, while the small- to mid-cap names, which had been gaining traction with the promise of Biden stimulus spending spurring economic growth, sold off.

Also joining the market’s celebration were health care shares, especially those names in managed care, where the threat of a “public option” leading to universal health care was dampened. Investors now see a constrained Biden presidency handicapped from introducing the broad policy initiatives outlined during his campaign. Under a Trump second term, health care companies would also enjoy a rebound.

While the blue wave scenario has all but evaporated, there remains a distant possibility that with four Senate races still to be decided, the Democrats could eke out a thin majority. It’s not likely but it remains part of the election puzzle until all the races are called. The two Jan. 5 Senate runoff races in Georgia are under the market’s microscope as they will determine control of the U.S. Senate. Expectations, at this point, are that the seats will remain Republican. To be sure, analysts will remain on high alert to see if there’s a chance that the Senate turns even light blue.

Read Quincy Krosby’s full November 2020 market commentary, “Navigating Between the Known and the Unknown."

References include the following: Associated Press, Barron’s, Bespoke Investment Group, Bloomberg, CNBC, CNN, Cornerstone Macro Research, Evercore ISI, The Financial Times, Goldman Sachs, Morgan Stanley, The New York Times, Real Money – TheStreet, Reuters, UBS and The Wall Street Journal.

The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.

© 2020 Prudential Financial, Inc. and its related entities. Prudential Annuities, Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

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Yue Parsons

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yue.parsons@prudential.com