Wall Street ‘euphoric’ as blue wave seen as unlikely, making progressive change more difficult

Markets are bullish, predicting divided government: Investment strategist

BMO Capital Markets chief strategist Brian Belski provides insight on the markets rally and how it’s impacted by the gridlock.

Stocks on Wall Street are surging higher despite extraordinary political uncertainty and a very real possibility that Democrat Joe Biden could win the 2020 election as several battleground states remained too close to call on Thursday.

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Stocks closed higher after Thursday’s trading session, with the Dow Jones Industrial Average and the S&P 500 each adding nearly 2%, marking the fourth consecutive day of gains.

Typically, uncertainty can cause markets to drop. However, election results have so far played out better than investors were expecting.

Brian Walsh, Jr., Senior Financial Advisor at Walsh & Nicholson Financial Group, told FOX Business that Wall Street was expecting a “blue wave,” meaning Democrats would pick up the presidency and the Senate, which it now sees as unlikely to occur.

“If current projections are correct, we will have a Democratic President and Republican Senate which is a positive catalyst for the equity markets,” Walsh Jr. said. “Wall Street is breathing a sigh of relief now that more regulation and progressive fiscal policies are seemingly off the table.”

The VIX, which measures volatility and fear on Wall Street, also dropped from a recent high of 40 back to around 28 as “worst-case fears have subsided,” Jon Burckett-St. Laurent, a senior portfolio manager at Exencial Wealth Advisors, told FOX Business.

So far, Democrats have lost five seats in the U.S. House of Representatives, for a total of 208 to the Republicans’ 190.

In the Senate, Republicans currently have 48 seats to the Democrats’ 46.

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A divided government would make it less likely that some of the more progressive items from Biden’s agenda would pass, should he win the presidency.

That is good news for Wall Street, which was no fan of some of the tax policies, including tax hikes on the rich, increasing the corporate tax rate and increased regulation.

Burckett-St. Laurent added that investors were also concerned about antitrust action and major health care changes.

The prevailing view is that no matter who wins, there will be a forthcoming stimulus policy, which would juice the markets.

Stimulus without tax hikes has contributed to the “euphoric” response on Wall Street, said Ryan Giannotto, CFA, director of research at GraniteShares.

“It is the Wall Street equivalent of a free lunch: all the benefits of stimulus without a penny of the costs,” Giannotto told FOX Business. “Moreover, despite the social and political implications of a divided or contested government, Wall Street obeys a much simpler calculus — it's all about the 'Benjamins.'”

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Fed Chair Jerome Powell indicated on Thursday that the Central Bank will continue to prop up the U.S. economy regardless of the outcome as well.

The Fed is purchasing a total of around $120 billion in Treasury and mortgage-backed securities each month, and intends to keep interest rates near 0%.

Four key races, Pennsylvania, North Carolina, Georgia and Nevada, remained too close to call as of Thursday night.

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