We won’t know for sure who controls the Senate until the Georgia runoff in January. Although Republican candidates have been favored, and in previous Georgia run-offs in 2004, 2008, and 2018, Republican candidates won Senate seats, there are still. Little chance of a “blue wave” trade re-emerging.
As the Republicans retain control of the Senate, the odds of a deal on a major stimulus package diminish. The additional $ 2 trillion that was on cards under the blue wave could be as small as the $ 500 billion with a crippling Senate presence.
For now, the markets seem to be ignoring this. The narrative appears to be that with Biden + Gridlock, a smaller deal will be reached at the end, returns will not rise as they would with a larger stimulus package, the Fed will remain in play and rates will remain low for longer, more quantitative easing and liquidity will be in place and the assets will be. Dangerous outside racing. Plus, no tax increases or the Trump-Biden shock factor is predictable and he hasn’t taken office yet, markets with such certainty.
In fact, historically, the combination of a previously divided government has been the most positive result for the S&P 500. Although sampling has been limited and throughout those periods, the economy has not been in the midst of a global pandemic. The coronavirus-hit US economy needs more than a tiny stimulus package and a disrupted Senate will not be good for growth, confidence or corporate profits.
The odds of reaching a lame duck deal before Biden are inaugurated are slim. The chances of a large stimulus package even after inauguration are slimmer. On Friday, Senate Majority Leader Mitch McConnell did little to recover expectations for a larger package enactment, “Our economy is really moving to get back on its feet. I think it clearly has to affect the size of any bailout that we do as well.” It seems that Unless the economic need becomes very dire, no big package will come.