With a Republican Senate, Bulls Can Still “Win” 2020

Election Day has come and gone, and we still don’t have a clear winner.

It’s the “nightmare scenario” many analysts were worried about. In late-night statements, both Trump and Biden essentially claimed victory.

Yet the market is rising this morning.

Wasn’t a contested election supposed to torpedo stocks?

Apparently not. Even with a big chunk of the electoral college up for grabs, investors are “buying the dip.”

And it’s all because of, what else, but the Federal Reserve.

“I think the big news for the markets right now at least as it looks preliminary is that there’s not going to be a blue wave, which is generally supportive for markets,” explained Mike Lewis, managing director of U.S. equity cash trading at Barclays.

“I think that the outlook going forward for markets is this is going to be more about policy and the Fed than it’s going to be about politics, which is a good thing for markets.”

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Stimulus and a dovish Fed.

What else could bulls ask for?

The Dow, S&P, and Nasdaq Composite are all up as of noon as a result. That could change, of course, if the ballot counting gets ugly in the coming days and ultimately delays a coronavirus relief package.

“We were getting ready for a big celebration. We were winning everything, and all of a sudden it was just called off,” Trump said.

“We’ll be going to the U.S. Supreme Court, we want all voting to stop. We don’t want them to find any ballots at 4 o’clock in the morning and add them to the list.”

Meanwhile, Biden told supporters that his camp “believe[s] we’re on track to win this election” and pushed for an extended tallying of mail-in votes.

Trump is expected to send in lawyers if swing states go to Biden, demanding recounts and ballot audits in the process.

Eventually, that could shift the election outcome to the Supreme Court, just as Trump suggested in his midnight remarks.

To Barry Bannister, Stifel’s Head of Institutional Equity Strategy, that bodes well for certain sectors.

“It appears investors may be satisfied with at least half a loaf (Republican Senate) and no tax increase, knowing they have a ‘Fed put’ if fiscal assistance is slower in coming,” Bannister said in a Wednesday note.

“This favors Growth stocks over Value near-term.”

Tom Essaye, founder of The Sevens Report, also sees plenty of upside despite unclear vote totals.

“News of a contested election could cause a sharp drop in stocks in the very short term, but we do not see it as a bearish gamechanger,” he said.

The biggest threat to a rising market – Biden’s tax plan – has seemingly been defused with a Republican majority Senate, provided that Biden wins the presidency. That alone should take the pressure off for scores of anxious bulls.

Regardless of how elongated the ballot counting, and subsequent Supreme Court battle, proves to be.

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