Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Investors have been weighing a major political unknown since the November election that could ripple through asset prices: control of the Senate.

A flip to Democrat control could put more pressure on the U.S. dollar and spark Treasury debt yields higher, while Republicans keeping control could fuel equities, various analysts said.

But while investors see some risks in how Tuesday’s runoff elections in Georgia go between incumbent Republican Senators David Perdue and Kelly Loeffler and Democratic challengers Jon Ossoff and Raphael Warnock, there should be at least some relief at long-awaited clarity over the balance of power in Congress.

Story continues below advertisement

WHAT IS AT STAKE?

If Republicans win at least one Senate seat, they will maintain a slim majority. If Democrats sweep the twin runoffs, the chamber would be split 50-50 and the tie-breaking vote would go to vice-president-elect Kamala Harris, giving president-elect Joe Biden’s party full sway over Congress.

Betting market PredictIt gives Republicans a 60-per-cent chance of retaining the Senate majority as of Friday.

A unified government would present Mr. Biden with enhanced ability to reshape the world’s largest economy, from rewriting the tax code to boosting stimulus and infrastructure spending.

Mr. Biden has in the past proposed raising the corporate tax rate to 28 per cent from 21 per cent, as well as spending US$2-trillion on infrastructure.

Some investors are weighing the potential of more stimulus ahead if Democrats take the Georgia seats. A US$892-billion relief package was passed by Congress last month, which Mr. Biden has called a “down payment” on a bigger stimulus. Senate Majority Leader Mitch McConnell has declined to schedule a swift vote on increasing COVID-19 relief cheques from US$600 to US$2,000.

Another round would be made more difficult if Republicans retain control of the Senate – although even if Democrats win the Georgia seats they could still struggle to pass spending legislation.

NAIL BITING? MAYBE A BIT

While markets typically hate uncertainty, risk appetite has been strong since the Nov. 3 election despite the unanswered question surrounding the Senate. The S&P 500 logged a gain of about 11 per cent.

Story continues below advertisement

Investors in the U.S. stock market are pricing an uptick in volatility around the runoff results, according to the CBOE Volatility Index, the stock market’s fear gauge, and options activity, analysts said.

“S&P 500 options are pricing in a lot more volatility over the next month than markets have experienced over the previous month,” Susquehanna International Group’s Chris Murphy said in a note, citing the Georgia Senate runoff as a possible catalyst.

REPUBLICAN VICTORY

Republicans winning both seats would be positive for stocks and limit the need for investors to tweak portfolios, some analysts said.

Any policy changes the Biden administration tries to bring would have to garner bipartisan support and necessarily be more moderate.

Even with just one victory, the Republicans could hang on to control of the Senate and pre-empt the need for big changes to asset allocations, said Edward Moya, senior market analyst at OANDA.

Political gridlock will likely prevent any substantial fiscal measures, helping keep Treasury yields in check.

Story continues below advertisement

For the battered U.S. dollar, it could mean less government spending that threatens to weigh on the greenback, and less risk of tax hikes that some see as limiting growth, analysts said. Still, analysts think the dollar is heading lower whatever the outcome.

DEMOCRATIC SWEEP

Democrats nabbing both seats has the most potential for market upheaval – but analysts are not all in agreement about exactly how.

A blue wave would spur a big reshuffling of positions, owing to increased regulatory risks for banks, technology companies and the energy sector, Mr. Moya said.

The prospect of higher corporate taxes is also viewed as negative for stock prices.

“I think you could see some aggressive selling, at least by traders, if there is that blue wave,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Still, a Georgia sweep would only give the Democrats a slim Senate margin, meaning Democratic proposals such as on tax may be watered down, analysts have said.

Story continues below advertisement

Michael Purves, chief executive of Tallbacken Capital Advisors, says he thinks it would be positive for equities, since it could signal a larger fiscal package.

Chris Woods at Jefferies said Democrats taking the Senate would mean “an ever greater convergence of loose fiscal and monetary policy” that would have negative implications for U.S. Treasuries and the dollar.

In Treasuries, the longer-dated end of the yield curve could rise further if the Treasury Department has to issue more new debt, driving prices down and yields up.

For the dollar, the prospect of increased government spending could lead to further weakness.

“The dollar is weakening in any scenario but it will get weaker faster under a Dem sweep,” Mr. Purves said, citing higher deficits and the potential for “more sluggish growth because of higher taxes down the road.”

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies