The Georgia Senate runoffs remain too close to call but the stock market is already betting on Democrats winning both seats—and taking the Senate.
How do we know? On one side we have cyclical and value stocks, and small-caps, which would be most exposed to continued stimulus spending under a Democrat-controlled Congress. The Dow Jones Industrial Average looks set to open up around 100 points, or 0.4%, while the Russell 2000 looks set to jump 2.4%. The SPDR S&P Bank ETF (KBE) has gained 1.4%.
On the other side, we have the tech stocks that had been leading markets higher for a long time now, getting hit. The Nasdaq-100, home to many of them, down 2%. And Investors aren’t differentiating much at this point. Apple (AAPL) has fallen 2.3%, while Microsoft has dropped 2.3%, and Amazon.com has dropped 2.2%. The S&P 500 is off 0.3%, no surprise given the weighting of those big tech stocks in the index.
Other asset classes were reacting as well. The U.S. Dollar Index has dropped 0.2%, while the 10-year Treasury yield has jumped 0.062 percentage point to 1.017%, finally breaking above 1%.
Of course, the vote counting isn’t over. While the race between Democrat Raphael Warnock and Republican Kelly Loeffler has been called in favor of Warnock, the race between Democrat Jon Ossoff and incumbent Republican David Perdue remains too close to call. “Today, focus will remain on the final outcome of the Georgia runoffs and whether or not Ossoff (D) can pull off a win over Perdue (R) to round out the ‘Blue Sweep,’ writes The Sevens Report’s Tom Essaye. “If the answer is yes, expect a continuation of this morning’s price action with a rotation out of tech and into cyclical and value stocks as well as a further decline in the dollar and rise in yields.”
European stocks found encouragement in early trading with the Stoxx 600 moving 0.6% higher and the German DAX 0.7% up. The U.K.’s FTSE 100 continued its strong start to the year, climbing 1.9%, led by banks and oil giants BP and Royal Dutch Shell. U.S. stock futures were largely lower, however, with the technology-heavy Nasdaq futures slipping 2% ahead of the open. S&P 500 futures were 0.3% lower but Dow futures edged 0.3% higher.
Read:Markets Brace for a Blue Wave After Georgia Senate Races
IG market analyst Joshua Mahony said investors were now considering a “much more disruptive and transformative” four years under Joe Biden than previously expected, if the Democrats end up controlling both sides of Congress. “With traders weighing up the benefits of greater fiscal expansion against more restrictive policies towards tech and the oil-and-gas sector, it comes as no surprise to see somewhat varied responses throughout markets,” he said.
Almost overshadowed by the political news was President Donald Trump signing an executive order banning transactions with eight Chinese apps, including Alipay and WeChat pay. The move put Asian markets under pressure overnight. However, the order won’t take effect for 45 days, when Joe Biden will be president.
Write to Ben Levisohn at [email protected]
