- With polls increasingly signaling a victory for Joe Biden in the presidential race, investors should shift their focus to Senate races, Morgan Stanley said Wednesday.
- Senate election outcomes “will mean the difference between substantial fiscal expansion and fiscal gridlock,” strategists led by Michael Zezas wrote in a note to clients.
- Treasuries and West Texas Intermediate crude oil are least priced for a so-called blue wave, the bank said.
- A Democratic sweep could temporarily drag stocks lower and create a “potential dip-buying opportunity,” the team added.
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November’s Senate elections will determine whether investors can look forward to a wave of new fiscal relief or face a prolonged legislative stalemate, Morgan Stanley strategists said Wednesday.
Polls and prediction markets have increasingly pointed to a victory for Joe Biden in the presidential race. Republicans would need a “game-changing event” to keep control of the White House, so investors should now focus on the Senate as a key driver of future policy, the team led by Michael Zezas wrote in a note.
“If the Democrats win the presidency, control of the Senate will mean the difference between substantial fiscal expansion and fiscal gridlock, which could challenge some of our colleagues’ more bullish views on risk assets,” the strategists added.
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The chance that Congress will pass new a stimulus package before Election Day is rapidly dwindling as Republicans and Democrats remain far apart in reaching a compromise. House Speaker Nancy Pelosi has continued this week to back her party’s $2.2 trillion bill and criticize the White House’s $1.8 trillion counteroffer.
Senate Majority Leader Mitch McConnell said Tuesday that he planned to bring a smaller aid package to a vote — a piecemeal approach that would go against both the White House and Democrats’ strategies.
Polling has indicated that Democrats could take control of the Senate and retain control of the House. Such an outcome would likely mean a push for a multitrillion-dollar stimulus measure early next year, the bank said in an earlier note.
Treasuries and West Texas Intermediate crude oil “appear least priced” for a Democratic sweep next month, the team said.
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Stocks would likely dip immediately after a so-called blue wave, but the strategists said they expected such downward pressure to be temporary, adding that the turbulence would present a “potential dip-buying opportunity.”
Still, markets aren’t likely to move until a clear victor emerges, and vote counting is expected to take longer than in previous elections. Vote-by-mail tallies are set to take about a week in Morgan Stanley’s base-case scenario. The period of uncertainty is likely to delay the market moves that the bank’s strategists anticipate.
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