Equities Price Out the Risk of a Dramatic Policy Overhaul

The long-expected stock market rotation to beaten-down small-cap and value stocks will have to wait another day.  Mega-cap technology stocks roared to life the day after the election, reprising their dominant role in equity markets in 2020 as the Blue Wave vanished.  Many on Wall Street, believing in the polls, expected a clean sweep by the Democrats.  That would have led to additional massive fiscal stimulus and a boost to economic growth, helping those beaten-down sectors of the market to outperform, while tax changes would impact this year’s high-fliers.

While the election results remain murky, it’s clear the next government will not have a free hand to remake the U.S. economy and the government’s role in it.  Morning Consult, a polling agency, found that 44% of Biden voters surveyed said they cast their votes against the sitting President rather than as an endorsement of the former Vice President.  Soft voter support and split-party control of Congress means major policy shifts are difficult, if not impossible.  Investors quickly got the hint and focused on the existing trends, especially as the country faces the possibility of new restrictions in the winter months against a backdrop of increasing Covid cases and hospitalizations.

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