Sunday, December 5

The future of the American economy is at stake in Georgia

New York (CNN Business) – Georgia is not just the center Of the political universe. It is also center stage on Wall Street.

The second round Of elections in Georgia will decide control Of the United States Senate. And that, in turn, will play a fundamental role in shaping the economic recovery and the investment environment.

“It is impossible to overstate how critical these races are to fiscal, tax and regulatory policy over the next two years,” Chris Krueger, policy analyst at Cowen Washington Research, told clients in a report.

A victory for the Democrats would open the door to more powerful fiscal stimulus than the shaky economy could very well need. But it would also increase risk Of corporate tax increases that investors despise.

Until recently, Republicans were expected to maintain control Of the Senate by winning at least one Of the Georgia elections.

However, the odds Of Democrats re-occupying the Senate have increased in prediction markets in recent days and weeks, a point investors are just waking up to. If Democrats sweep Georgia, they will effectively control the Upper House Of Congress, and Vice President-elect Kamala Harris will cast the swing vote to break any 50/50 deadlock.

Election in Georgia: what do the latest polls say? 1:17

“Senate control is a 50/50 probability in either direction,” Ed Mills, Washington Policy Analyst at Raymond James, wrote in a note to clients Monday.

Bettors at PredictIt, a prediction market, they are paying just 55 cents to earn $1 if the Republican Party maintains control Of the Senate. That’s well below the 87 cents on Election Day and 75 cents at the end Of December.

Given the “totally unprecedented nature” Of the election, Krueger said, “the Georgia races are a” shot in the air. “

Trump’s call to Georgia secretary Of state increases uncertainty

The Senate’s outlook is further clouded by the revelation that President Donald Trump pressured Georgia Officials to “find” 11,870 votes that would reverse his defeat in the state.

“This is not helping Republicans at all,” said Greg Dallier, chief US policy strategist at AGF Investments.

He added that Trump’s efforts to question the integrity Of the election “may have confused” Republican voters in Georgia, just when he needs them to vote.

Investors may also be confused.

Trump held rally in Georgia to ask the Senate for a vote 2:51

US stocks rose after Election Day, in part because Wall Street believed neither party would be firm in charge Of Washington. The thinking was that the incoming Biden administration would not be able to implement radical tax and climate policies by a Senate led by the Republican Party.

However, Wall Street is now bracing itself for the possibility, as there may be less stagnation in Washington than previously thought. And that has both positive and negative aspects for investors.

Stocks fell sharply on Monday and some analysts pointed to uncertainty over Georgia as one Of the culprits in bringing down the previously hot market.

“The prospect Of Kamala Harris being a tiebreaker on any 50/50 vote makes investors nervous in the short term,” said Lindsey Bell, chief investment strategist at Ally Invest.

Tax hike fears may be overblown

Investors’ big fear is that the GOP losses in Georgia would pave the way for big tax increases that not only depress corporate prOfits but derail the recovery. In theory, Democrats could use budget reconciliation to enact sweeping political change with party-line votes.

But some analysts say fears Of immediate tax increases are overblown given current economic and political realities.

“I don’t feel like Congress is in the mood to act quickly on taxes until people are sure the economy has recovered,” Dallier said.

Keep in mind that a 50/50 tie in the United States Senate is not the blue wave that progressives expected. All 50 Democrats would have to pass the legislation, including moderates like West Virginia’s Joe Manchin.

“Manchin would not be a wild card for the Democrats,” Dallier said.

Michael Cymbalist, President Of Market and Investment Strategy at JPMorgan Asset Management, agreed that Democrats may find it “difficult” to pass Biden’s tax and spending proposals through “very narrow” majorities in the Senate and House. Of Representatives. He added that Manchin is “ideologically closer to moderate Republicans than to progressive Democrats.”

How much more help will there be for the economy?

Unlike the tax increases, Democrats are likely to rally together to support legislation that would provide further aid to the economy ravaged by Covid-19.

Late last month, Congress finally approved a $900 billion federal aid package that helps small businesses and households.

Fight Covid-19, Biden’s flag in Georgia 2:38

The worsening pandemic – and the slow start Of vaccine distribution – suggest that the economy may need more help in the coming months. But with Republicans out Of the White House, the Republican Party is now showing concern about the growing federal budget deficit. If the Republican Party retains control Of the US Senate, there may be little appetite for another round Of substantive federal aid.

“A Senate led by Democrats could mean there will be more stimulus on the way to ensure that the recovery gets back on track,” said Bell de Ally.

President-elect Joe Biden has called for $3 trillion in infrastructure spending to accelerate the economy and rebuild dilapidated roads, bridges and airports.

Analysts have said that Biden’s plan is a real possibility if Democrats sweep Georgia. Otherwise, it can be difficult to convince Congress to spend even a trillion dollars on infrastructure.

“Investors would see large infrastructure spending as a very good thing for the market,” said Bell.

All Of this explains why Bell is betting that an instinctive sell-Off on Wall Street for a possible sweep Of the Democrats in Georgia could prove a buying opportunity for investors.

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