It’s not over yet — still — but the U.S. stock market isn’t waiting, poised to record its strongest rally since April. Although there is still no definitive winner of the presidential election, and control of the Senate is somewhat murky three days post-election, U.S. stocks are on a tear. The S&P 500 gained more than 7% through midday Friday, but the advance slowed on the last trading day of the week.
Former Vice President Joe Biden is expected to win the presidency after all the votes are counted — tallies are still outstanding from Pennsylvania, North Carolina, Nevada, Georgia and in some counts, Arizona — and the Senate will likely remain under Republican control.
There is, however, a slight chance of an even split in the Senate if Democrats win runoffs for two races in Georgia — only one runoff is certain — or if they win one runoff in Georgia and the Senate race in North Carolina, which has still not declared a winner, though the Republican incumbent is favored to win.
At this point, financial markets appear to be expecting a Democrat as president and a Senate led by Republicans — the proverbial divided government that many strategists say markets prefer.
“A Biden presidency with a Republican-led Senate likely means less fiscal spending, but also few tax increases and partisan constraints on legislative action,” according to a UBS Election Brief written by Solita Marcelli, chief investment officer Americas; David Lefkowitz, head of Equities Americas; and Thomas McLoughlin, head of Fixed Income Americas.
Long-term bond yields fell post-election based on expectations for a smaller fiscal relief package, which has led to a rotation into secular growth sectors and out of almost everything else except health care, according to the UBS strategists. The VIX, or Volatility Index, also fell sharply.