That’s how much the S&P 500 Index could fall if Democrats win the two U.S. Senate seats in Georgia’s runoff election Tuesday, the brokerage firm Oppenheimer estimates.
From its 2020 close last week, the popular stock market benchmark could experience a “downdraft of anywhere between 6% and 10%,” Oppenheimer’s Chief Investment Strategist John Stoltzfus said Monday, citing market expectations that at least one of the two seats will go to the Republicans and uncertainty over President-elect Joe Biden’s fiscal strategy. The S&P was down about 1% for the year as of midday Tuesday.
“Increased uncertainty over taxes and spending could likely weigh on the equity market at least until the intentions of the Biden Administration are given greater definition,” Stoltzfus wrote in a note, referencing the possibility of higher corporate tax rates and expanded government. Plus, he wrote, investors will be skittish “should closely called elections take weeks to determine the winners.”
The stock market performs better when the same political party doesn’t control both the presidency and the Congress, according to Stoltzfus, and it “appears to us that the equity markets over the past two months have priced in a Republican victory in at least one of the two,” he wrote. Democratic wins in both Senate seats would give the party control over Congress (albeit by the slimmest of margins), making it easier for the Biden administration to accomplish its goals.