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Bidens Wins and a Split Congress Scenario

The stock market continues to price in the outcome of the presidential election. Pending the result of the election, these are the four possible scenarios: (1) Status Quo – Trump wins, Republicans hold onto the Senate, and Democrats retain control of the House. (2) Democrats Blue Wave Sweep – Biden wins, Democrats wins control of the Senate and remains in control of the House. (3) Split/Gridlock – Biden wins, but Republicans hold the Senate but not the House. (4) Contentious or delayed election – The outcome of the presidential election gets delayed for a long time.


It appears scenario 3 is increasingly likely with Biden winning the White House, the Republicans retaining the Senate, and Democrats holding on to control of the House.


Many believe this is best for the US economy and the US stock market. There will be less of a threat of a large tax hike. Anti-trust actions against the big Technology names will subside. The US will still get a stimulus package, but it will not be as large as with the Democrats sweeping the election. US interest rates will remain accommodating (lower yields), the FED will continue with easy liquidity, US deficits will increase but at a pace, a weaker US Dollar, improving commodity prices, and contained inflation.


Today was one of the best post-election day gains in history. Although one day does not make a market trend, post-election results show investors and traders favor the following markets and sectors as they rose the most:


Based on today's stock market actions the following areas have outperformed: Growth stocks (S&P Large-Cap Growth Index – SGX +3.46% today), Momentum Factor (MTUM +4.49%), Emerging Markets (EEM +3.14%), China market (FXI +4.17%), Healthcare (XLV +4.48%), Technology (XLK +3.89%), Communication Services (XLC +4.30%), and Consumer Discretionary (XLY +2.13%).


On the other hand, the markets and sectors that struggled and underperformed today are Value stocks (S&P Large-Cap Value Index – SVX +0.27% today), Commodities (CRB +0.77%), Materials (XLB -1.70%), Utilities (XLU -1.48%), Financials (XLF – 1.17%), Energy (XLE +0.14%).


S&P 500 Sectors - 11/04/20 daily returns Source: Courtesy of StockCharts.com

S&P 500 Sectors - YTD returns Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: FINVIZ.com

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