What a Blue Sweep Means for Markets

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The run-off elections for two seats in the US Senate look to end in victory for Democratic candidates with Raphael Warnock beating Kelly Loeffler and Jon Ossoff likely to take the seat of David Perdue.

The result implies a de-facto Democratic majority in both congressional chambers — a big win for President-Elect Joe Biden. Democrat majority in both congressional chambers means Biden can get to work.

But what does the election result mean for markets? The following covers five broad themes and their implications for equities, bond yields, and liquidity demand.

If there’s a thing investors dislike, it’s uncertainty. At least if it isn’t followed by a return premium.

Uncertainty has been on the rise recently. In large due to the covid-19 pandemic and the uncoordinated and laissez-faire response of the US government.

Another driving factor is the November elections. President Donald Trump, who went tough on China, abolished trade deals, and declared war on American stalwarts such as pharmaceutical companies and big tech over the course of his presidency, has done his part to keep uncertainty high.

Elevated risk perception has kept precautionary institutional investors liquid. The amount of assets held as cash-equivalents is at record-highs