The results of Tuesday’s Georgia Senate election came as a small surprise, defying predictions that called for at least one Republican candidate to prevail. With two newly elected Democrats joining the Senate, we now must attempt to determine the direction of the markets and the economy under the “Blue Wave” and more left-leaning policy initiatives.
While it is quite possible there will be a sizable tax increase in 2021, we believe it is very unlikely that material tax changes will take place under a COVID-restrained economic environment. Keep in mind that Democrats lost House seats in the general election and now hold only a “soft” majority in the Senate, with Vice-President-Elect Harris holding the tie-breaking vote. Therefore, while Tuesday’s election results directionally changed what a Biden administration might be able to accomplish, they do not mean that all of Biden’s campaign promises will be pushed through. Rather, it is more likely that we will see a more scaled-down version of the president-elect’s proposed platforms.
It is also important to remember that although political gridlock has been good for the markets historically, unified governments are not necessarily bad. As demonstrated in the chart below during the seven gridlocked governments (in yellow), the S&P was up an average of 60 percent. However, during the previous six eras led by Democratic governments, the S&P was up 56 percent, on average, while performance during the three Republican-led governments was up an average 35 percent. (Source: Yardeni Research, Standard and Poor’s).
Most importantly, the potential for additional stimulus down the road and the reopening of the economy with a highly cooperative Fed and Treasury Secretary should provide significant tailwinds to the equity markets for 2021. Our experience navigating presidential cycles has taught us that changes in government policy, whether more conservative or more liberal, are not themselves reasons to change one’s investment philosophy. Moreover, neither creeping socialism nor creeping conservatism, by themselves, can push economies into recessions. Of course, there will be net winners and losers under any change in policy direction, and we are committed to continue navigating those adjustments on your behalf.
At this moment, we believe the current “Liquidity Wave” is far more impactful than the “Blue Wave,” and we continue to be optimistic about the markets through the balance of the New Year. Unless something materially changes that would impact your investments, we currently recommend you stay the course we worked with you to set and avoid letting your heart dictate your investment plan. If you have any additional questions, please reach out to your trusted advisors with PWA.
About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisor, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors and CPAs, and a registered representative with Raymond James Financial Services. He can be reached at the firm’s Ft. Lauderdale, Fla., office at (954)
712-8888 or via email at firstname.lastname@example.org.
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Todd A. Moll is a registered representative of and offers securities through Raymond James Financial Services, Inc., Members
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