With President-elect Joe Biden heading to the White House and a Democratic-controlled House of Representatives, Wall Street has been comfortable with the view that Biden and the Democrats could not succeed with tax hikes and more progressive policy changes while Republicans hold the Senate.
The runoff election for the two Senate seats Tuesday is widely expected to result in one or both of the incumbent Republican senators retaining their seats. But Democrats are close in the polls and should they win, each party would have 50 seats with Vice President-elect Kamala Harris the tie breaker.
“Georgia is the most important thing to the Biden presidency for the next two years,” said Ed Mills, Washington policy analyst at Raymond James. “It’s going to determine what is the legislative agenda and who can get confirmed by the United States Senate.”
Sen. David Perdue is being challenged by Democrat Jon Ossoff, while GOP Sen. Kelly Loeffler is running against Democrat Raphael Warnock. None of the candidates had more than 50% of the vote in the Nov. 3 election, so Georgia law requires a runoff election between the two leading candidates for each seat.
“It’s a binary event,” said Mills, adding it’s of growing interest to markets. “The general sense for the market is that Republicans are well positioned to maintain their majority in the Senate. But I think the 2020 election as well as the 2016 election and to some extent, the 2018 election has humbled us … The Senate outcomes, in particular, seem to be less predictable than almost any other elections.”
Mills said the results may take several days to determine, adding to the uncertainty the event could hold for markets. According to an RBC investor survey, 88% expect Republicans to maintain control, and most say that is a positive for the stock market.
“The market tends to shoot first and ask questions later. There will certainly be a reaction if Democrats win both those seats,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Strategists say there could be a relief rally if Republican incumbents see a clear victory.
“That totally dominates [trading] because it’s about do we have status quo or do we have Democrats controlling all parts of Washington and what that means for spending and taxes,” Boockvar said. “I think you could see the worries about taxes overwhelming any thoughts on the benefits of more spending” by Democrats.
A year of extreme volatility ended with a big win for stocks, as the pandemic steered the course for markets. The S&P 500 was up 16.3% for the year, ending at 3,756. That gain comes after a 34% decline early in the year, followed by a powerful more-than 65% rebound. Technology was the big winner for the year, and the Nasdaq was up 43.6% at 12,888.
Besides the runoff vote, the market will be watching a stream of data in the coming week, including the important December jobs report Friday. That could show fewer than 100,000 jobs were added as the spreading virus impacted hiring and layoffs. There were 245,000 jobs created in November.
There is also ISM manufacturing data Tuesday, and a number of Fed speakers, including Vice Chairman Richard Clarida on Friday.
The virus itself could also be a factor for stocks.
Conventional wisdom for the coming year has been that vaccines will be widely distributed, and by the second half things will start to get back to normal and the economy will pick up. But the initial distribution has been slow, and far short of the 20 million targeted for December by President Donald Trump’s task force.
In that recent RBC survey, three quarters of investors were optimistic about vaccine distribution with 80% expecting a majority to be vaccinated by the end of 2021. “We suspect that the positive outlook for the stock market and the economy would deteriorate if expectations for a smooth vaccine rollout are not met,” RBC strategists wrote.
They also noted that nearly 60% of the investors surveyed believe high stock market valuations are problematic.
“This suggests to us that any threat to the economic and earnings recovery story could spark profit-taking. On this point, it is worth noting that the vaccine was the No. 1 issue keeping investors up at night, closely followed by monetary policy and excessive optimism on the recovery,” the strategists noted.
Chris Rupkey, chief financial economist at MUFG Union Bank, said investors will also be watching the formal acceptance of the Electoral College vote Wednesday. Strategists expect the vote count to confirm Biden’s presidency.
However, Missouri Sen. Josh Hawley says he will challenge the certification, and several House Republicans have already vowed to contest the election at that time. If one House member and a senator jointly object to a state’s slate of electors, the two houses of Congress must separately debate and vote on the objection.
Strategists see little chance of any impact on the election outcome, but there could be fireworks. Trump has been claiming since the election that there was fraud but multiple courts failed to find any truth to the claims.
Rupkey said investors are not taking into account enough potential for political risk from the deep animosity between the two political parties.
“I think the additional stimulus and hopes for additional stimulus, and infrastructure spending in 2021, I don’t know that that is such a slam dunk, because of the issue of political instability,” he said.
Week ahead calendar
Monday
9:45 a.m. Manufacturing PMI
10:00 a.m. Construction spending
10:00 a.m. Chicago Fed President Charles Evans
12:15 p.m. Cleveland Fed President Loretta Mester
6:00 p.m. Cleveland Fed’s Mester
Tuesday
Vehicle sales
10:00 a.m. ISM manufacturing
3:45 p.m. New York Fed President John Williams
3:45 p.m. Chicago Fed’s Evans
Wednesday
8:15 a.m. ADP payroll data
9:45 a.m. Services PMI
10:00 a.m. Factory orders
2:00 p.m. Fed minutes
Thursday
8:30 a.m. Initial jobless claims
8:30 a.m. International trade
9:00 a.m. Philadelphia Fed President Patrick Harker
OTTAWA – The Liberal caucus turned its attention to the party’s plan for the next election on Wednesday, after an unsuccessful attempt by some MPs to oust Prime Minister Justin Trudeau last week.
Longtime Liberal operative Andrew Bevan was named the new national campaign director two weeks ago and made his first presentation to the full caucus during the weekly meeting.
The next election must be held by Oct. 20, 2025, but it could come much sooner. The Conservatives and Bloc Québécois have pledged to try to bring down the minority government this fall.
NDP Leader Jagmeet Singh said Wednesday that his party wouldn’t help them topple the Liberals. The Conservatives and Bloc don’t have enough MPs between them to defeat the government if the Liberals and NDP vote together.
The presentation was initially scheduled to happen last Wednesday, but that nearly three-hour meeting was instead dominated by discussions of Trudeau’s leadership.
Toronto-area MP Nate Erskine-Smith said the party’s leadership was not the focus of caucus this week, and the priority was hearing from Bevan.
“It was very much focused on: these are the next steps from a party perspective, and people were able to weigh in with their own feedback as far as it goes,” Erskine-Smith said following the meeting.
“That question from last week to what’s the finality, that wasn’t part of it.”
MPs were not able to share specific details of what was discussed in the meeting due to caucus confidentiality.
At last week’s meeting, a group of around two dozen MPs presented a letter to Trudeau calling on him to step aside. The dissenters gave him until Monday to make a decision — but he made it clear he plans to lead the party in the next election.
Several MPs have since said they want to hold a secret ballot vote to decide on whether Trudeau should stay on as leader. However, the Liberal party chose after the last election not to use Reform Act rules that would have allowed a caucus to hold a secret vote to oust the leader.
British Columbia MP Patrick Weiler said he thinks the leadership concerns are not over.
“I think we had a very good meeting last week, and I think there are a lot of unresolved questions from that, that still need to be addressed,” Weiler said while heading to question period on Wednesday.
“I think there are a lot of people that are still looking for some answers to those things and until that’s addressed, that’s going to be lingering.”
But several other MPs and cabinet ministers said they feel the matter is resolved and it’s time to move on to planning for the next campaign.
Judy Sgro, a veteran Ontario MP of nearly 25 years, said even though the Liberals are trailing the Conservatives in the polls, she believes they can pull off a victory.
“I’ve been through five leaders, this is my fifth leader. Most of the time they’re unpopular, but we still manage to win,” she said.
Erskine-Smith said the “overwhelming focus” for now is on what comes next, but he could see leadership troubles come up again depending on the results of two upcoming votes.
Byelections are pending in former Liberal ridings on both coasts: a vote must happen in Cloverdale—Langley City by Jan. 13 and in Halifax by April 14.
This report by The Canadian Press was first published Oct. 30, 2024.
Voters in Nova Scotia are scheduled to go to the polls on Nov. 26. At dissolution, the Progressive Conservatives held 34 seats in the 55-seat legislature, the Liberals held 14 seats, the NDP had six and there was one Independent.
Here’s a look at some of the promises announced by the three major parties:
Progressive Conservatives:
— Cut the harmonized sales tax by one percentage point, to 14 per cent, by April 1. (Announced shortly before election call.)
— Increase the basic personal exemption on the Nova Scotia income tax to $11,744 from $8,744.
— Increase minimum wage in 2025 to $16.50 per hour from $15.20 per hour.
— Remove the tolls from the two Halifax harbour bridges at a cost to government coffers of $40 million.
Liberals:
— Establish the position of ethics commissioner with order-making powers; give more resources to auditor general.
— Grant order-making powers to the privacy commissioner so that rulings related to access to information requests and other privacy matters can be enforced.
— Implement fine of $250,000 for any governing party that defies law on fixed election date.
— Remove the provincial portion of the harmonized sales tax on all food that isn’t already tax-free, such as snack foods, granola products, and rotisserie chickens, at a cost of $11 million annually.
— Provide about $10 million in subsidies for independent grocers and food retailers in the form of grants and low-interest loans to help them expand and compete with big retailers.
NDP:
Announced a housing plan in May 2024 that would:
— Prioritize the use of prefabricated housing to expand public housing stock.
— Increase loans to help with down payments on homes, to 10 per cent of purchase price (up from five per cent), for a maximum of $50,000; extend the repayment period to 25 years from 10 years.
— Establish rent control and provide a tax credit for renters from low and middle-income households.
This report by The Canadian Press was first published Oct. 29, 2024.
