Investors will have their eyes peeled on the Georgia run-off elections on Tuesday to determine which party will control the Senate. A Democratic win of the two contested Senate seats could trigger a selloff in the markets, according to Oppenheimer strategist John Stoltzfus.
“Should the Democrats win both seats, we expect the S&P 500 to become vulnerable to a downdraft in the neighborhood of 6% to 10%,” wrote Stoltzfus in a note to investors.
“In our experience the markets prefer that Washington’s Capitol Hill have enough checks and balances in place to keep political power out of just one party’s hands,” he added.
The Democrats already control the House of Representatives. A Democratic Senate sweep “would bode ill for business with the likelihood that corporate tax rates could rise substantially,” added Stolzfus.
“In addition, a Democratic sweep in Georgia would likely see a boost in new government program creation and spending at a time when many voters, market participants and business leaders are concerned about the sizable level of debt that the Treasury has had to take on to provide a financial ‘bridge over troubled water’ via fiscal stimulus,” he added.
Republicans would need to win at least one Senate seat to hold a slim majority. If they lose both seats then the chamber would be split 50/50. Vice President-elect Kamala Harris would have the ability to cast the tie-breaking vote.
In the November elections President Trump lost the state of Georgia to President-elect Joe Biden. Over the weekend the President urged Georgia’s secretary of state to overturn his defeat in the state according to a phone recording first published by the Washington Post.
The Dow (^DJI) and S&P 500 (^GSPC) both notched record highs on Friday. This week investors will receive economic data including the ISM surveys, the nonfarm payrolls report and the minutes from the Fed’s December FOMC meeting.
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre
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