By Dima Kulakov
Marko Kolanovic, JPMorgan’s top equity strategist, believes the US election outcomes are likely going to be “the best of both worlds for stocks.”
Kolanovic states that Joe Biden as president, with a split Congress would create a market-friendly environment, with “lower taxes, status-quo regulations and a better U.S.-China trade relationship.” Kolanovic called this outcome “one of the most favorable scenarios for the market.”
“A GOP senate majority should ensure that Trump’s pro-business policies stay intact (tax code, deregulation), and if Biden is confirmed we should be able to expect an easing of the trade war (which should boost global trade and corporate earnings growth),” Kolanovic said.
Additionally, he claimed that the lack of “market disrupting tweets” may lead to less market volatility, in turn resulting in inflows to risk assets.
The market rallied during election week, as the probability of Democrats taking control of both the White House and Congress dwindled. A “blue wave” scenario would most probably lead to “increased antitrust scrutiny” and higher taxes, damaging high-growth technology stocks.
“Within equities, after an initial rally of growth/momentum (on elimination of the Blue Wave scenario), we expect value to take the lead. The arrival of a vaccine should drive long-term value outperformance,” noted Kolanovic.
Fundstrat’s founder and chief strategist, Tom Lee, had similar thoughts regarding the market and its reaction to the election.
Based on last Wednesday’s trading, specifically, Lee claimed that investors are acting on the belief that the Republican Party will maintain its Senate majority. There was a 4% jump in the tech-heavy Nasdaq, with names such as Facebook and Amazon outperforming.
Lee suggested that a Biden administration coupled with GOP control of the Senate minimizes the likelihood of a capital gains tax raise and a higher corporate tax rate. Those policy changes, usually having negative effects on stock valuations, would be possibilities with total Democratic control in Congress, Lee stated.
“If we were going to have a blue wave, I don’t see how anyone rationally wants to buy FAANG and the mega-caps before year-end knowing there’s probably going to be a flood of selling to reset the basis, so I think that rally is a relief rally that the Senate stayed Republican,” said Lee.
Both Lee and Kolanovic correctly called the bottom of the equity market in March, before most other strategists, and both believe that we are in a secular bull market, meaning that stock prices will continue to grow over time, making them some of the most prominent bulls.