Although President Donald Trump has not conceded the race and has mounted legal challenges to contest key state results, the 2020 U.S. elections appear to have produced a presidential win for Democrat Joe Biden. Two runoff elections in Georgia in January will determine the balance of power in the Senate. Currently, a continuation of divided government appears most likely, with Democrats narrowly retaining control of the House.
While capital markets appeared to have reacted positively to these results, the postelection transition creates a potential for market volatility. However, T. Rowe Price investment professionals believe that other issues, such as further progress on a coronavirus vaccine, are likely to be more critical in the months ahead.
"I think eyes will be more on the response to COVID than on the election," says John Linehan, CIO, Equity. "The only reason that could change would be if we got into an environment where there was a seriously contested election. In that environment, I think markets would go much more into ‘risk off' mode."
Election and Policy Issues
With Congress entering the "lame duck" period before President-elect Biden's inauguration, markets will focus on the prospect for additional fiscal relief. Negotiations on such a package broke down shortly before the election.
Katie Deal, the Equity Division's Washington analyst, sees only a "slim chance" of significant fiscal legislation before the end of 2020, with negotiations beginning in earnest for a 2021 stimulus package. Given the slim majority either party may hold in the upcoming Senate, Democrats will struggle to match their previous USD 2.2 trillion package, which failed to move beyond the House.
Divided government likely will dominate the fiscal picture in 2021—assuming Republicans hold at least one of the two Georgia Senate seats headed for runoff elections. "In a GOP Senate, a proposed tax rate increase of any magnitude would be dead on arrival," Linehan predicts.
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