Democrat Jon Ossoff was declared the winner Wednesday afternoon of one of two Senate seats in Georgia, defeating Sen. David Perdue and giving the Democrats control of the chamber for the first time in six years.
Early Wednesday morning, Democrat Raphael Warnock won against Sen. Kelly Loeffler, a Republican.
The Senate runoff news was overtaken Wednesday, however, by supporters of President Donald Trump who stormed the U.S. Capitol, forcing a lockdown as legislators convened to certify President-elect Joe Biden’s victory. Biden said in a televised address Wednesday afternoon that “at this hour, our democracy is under unprecedented assault.”
With the Democratic wins in Georgia, “It feels like a brand new day,” Senate Minority Leader Chuck Schumer, D-N.Y., said Wedesday morning in a statement. “For the first time in six years, Democrats will operate a majority in the United States Senate — and that will be very good for the American people.”
Schumer will become majority leader, replacing Sen. Mitch McConnell, R-Ky.
Schumer added that “For too long, much-needed help has been stalled or diluted by a Republican-led Senate and President Trump. That will change with a Democratic Senate, Democratic House, and a Democratic President.”
Greg Valliere, chief U.S. strategist for AGF Investments, said in his Wednesday morning email briefing, that “Everyone who went to bed last night thinking there might be a split decision in Georgia got quite a surprise this morning — it appears that the Democrats have won both races.”
President Elect Joe Biden “is likely to get all of his Cabinet nominations approved,” Valliere opined, with the possible exception of Neera Tanden to head the Office of Management and Budget.
Tanden “has Democratic detractors,” Valliere wrote. “But Biden will not have to spend political capital on his nominations, and he now has the upper hand on judicial appointments.”
The Dow Jones Industrial Average closed up 1.4%, while the S&P 500 rose about 0.6% and the Nasdaq fell 0.6%.
“In the short term, investors will be pleased by the prospect of greater stimulus,” Andy Friedman, founder and principal of The Washington Update, told ThinkAdvisor. “Later, though, they will fear a tax increase, which the Democrats could pass without regard to the filibuster.”
The filibuster is important, Valliere explained, “because it will allow the Democrats to pass a major package with only 50 votes if it’s part of a budget-related bill — maybe twice in 2021, some sources say, once for another stimulus, once for tax hikes. But non-budget bills on issues like a Green New Deal probably will languish.”
More concerning to the markets, Friedman said, “would be a move by a Democratic majority to eliminate the filibuster itself. Doing so would allow Congress to pass a broad array of Democratic initiatives, many of which are anti-business. I don’t think the filibuster will be eliminated, but even an aborted effort to do so could scare the market.”
Raymond James analysts said in a Wednesday morning email briefing that they “expect near-term weakness as the market responded well to the expectation of a divided government. It was not until this week that the market started to take the possibility of a Democratic sweep as more likely.”
Statements and actions by the Biden transition team “will be key in establishing the medium-term market reaction,” the Raymond James analysts wrote. “There will be growing optimism for additional stimulus, especially for individual payments and infrastructure spending.”
Valliere added that there’s a “much better chance that another stimulus bill will pass later this winter as COVID rages; the $900 billion package two weeks ago was simply a ‘down payment,’ as Biden stated.”
Biden “probably will get more than $1 trillion in the next bill, a plus for the economy (but a concern for the bond market, where the 10-year Treasury yield topped 1% overnight),” Valliere said.
Higher Taxes Are Coming
Higher taxes are coming, Valliere warned, the “only issue is when and by how much.”
A package of tax hikes “will come into focus by late spring — higher capital gains rates, a hike in top corporate and individual rates, a new minimum corporate tax, higher Social Security payroll taxes, a higher estate tax rate,” he wrote.
“It’s possible that Biden will wait until it’s certain that the economy is back on its feet, but we feel confident in predicting that higher taxes will be a major issue for investors now that Biden may have the votes to prevail via reconciliation.”
— Check out Why Stocks Are Rallying on Expectations of a Democratic Sweep in Georgia on ThinkAdvisor.