The race between Democrat Raphael Warnock (above) and Republican Kelly Loeffler has been called in favor of Warnock. (Photo by SANDY HUFFAKER/AFP via Getty Images)
AFP via Getty Images
One Georgia Senate runoff remains 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. By mid-morning, the Dow Jones Industrial Average was up 406 points, or 1.3%, while the Russell 2000 jumped 2.4%. The SPDR S&P Bank ETF (ticker: KBE) has gained 6.1%.
On the other side, we have the tech stocks that had been leading markets higher for a long time now, getting hit. The Nasdaq Composite home to many of them, slipped 0.1%, with losses having moderated from early trading. Apple (AAPL) fell 1.5%, while Microsoft (MSFT) dropped 1.4%, and Amazon.com (AMZN) declined 1.5%. The S&P 500 rose 0.7%.
Other asset classes were reacting as well. The U.S. Dollar Index has dropped 0.2%, while the 10-year Treasury yield has jumped 0.092 percentage point to 1.049%, 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 1.4% higher and the German DAX 1.5% up. The U.K.’s FTSE 100 continued its strong start to the year, climbing 3.6%, led by banks and oil giants BP and Royal Dutch Shell.
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.
Elsewhere, Mastercard (MA) shares gained 0.8% after Bank of America upgraded the stock to buy from neutral.
Bank stocks popped as interest rates did the same. Wells Fargo (WFC) rose 6.9%.
PepsiCo (PEP) fell 1.6% after being downgraded to In-line from Outperform at Evercore. Coca-Cola (KO) fell 3.4% after being downgraded to Hold from Buy at Deutsche Bank, which also reduced its price target to $55 from $57. It was the third cut for Coca-Cola in three days this week.
Beyond Meat (BYND) dropped 2.6% after getting cut to Neutral from Overweight at Piper Sandler.
UnitedHealth Group (UNH) has is up 0.3% after its Optum unit agreed to acquire Change Healthcare (CHNG) for $25.75 per share in cash. Change has jumped 31%.
(Callum Keown contributed to this article.)
Write to Ben Levisohn at [email protected]
