Voting wrapped up in Georgia on Tuesday evening in a pair of U.S. Senate runoff elections, with the result set to determine who controls the U.S. Senate. As of Wednesday morning, the Associated Press has declared Democrat Raphael Warnock the winner over incumbent Republican Sen. Kelly Loeffler in their runoff, while the other race between Republican David Perdue and Democrat Jon Ossoff remained too close to call. The latest figures showed Ossoff holding a narrow lead of Perdue. Should Ossoff ultimately prevail, Democrats would effectively gain control of the Senate by virtue of a 50-50 split with the tie-breaking vote belonging to Vice President Kamala Harris. Democrats would thus control the White House, Senate and the House of Representatives.
At this time, we don’t believe this election outcome warrants investors taking any specific action right away. It’s important to keep in mind that for long-term investors, it’s policy, not politics that matters most. While it’s still too early to fully appreciate the policy implications of yesterday’s elections, our assessment is that the result will have a marginal but not transformational impact on policy in the years ahead.
Ultimately, Democrat’s margin of control in both the Senate and the House will be a very narrow one which means that big, transformational pieces of legislation still face very long odds of enactment. Accordingly, the results of yesterday’s elections don’t change our view that we still believe it’s highly unlikely that some of the more significant and sweeping pieces of legislation favored by the party’s liberal or progressive wings will be enacted anytime soon. This includes things like a Green New Deal, a significant expansion of entitlement programs as well as an overhaul of the tax code (both individual and corporate).
At the same time, this electoral outcome does increase the chances of seeing more middle of the road priorities favored by Democrats being enacted. Specifically, we think Democratic control of the Senate increases the likelihood of yet another round of stimulus payments to individuals, more direct aid to state and local governments as well as increased infrastructure spending (which is likely further down the road).
We will continue to monitor the developments as the come and will adjust portfolio positioning as warranted.
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