In last month’s post we talked about the market signal that indicated the high possibility that Joe Biden would win election. It may be not much of a surprise to see the election outcome based on the polls and market signals. But a blue wave did not come as some analyst expected. A split Congress may still be the case.
Here is what check and balance of power comes. A split Congress means the most aggressive policy proposals may be hard to pass. This includes a big increase of corporate tax and initiatives to fund green energy and infrastructure. A fifth COVID-19 relief bill may be the priority for the administration, but a package would have to be smaller than previously discussed to get through the Republican Senate.
Biden Administration is expected to continue hard stance with China though some tariff may be rolled back. According to estimates from Strategas Research Partners, removal of the China tariffs would increase 2021 earnings for the S&P 500 by more than 5%.
Split Congress means that it will be difficult to tackle some persistent problems in the economy. However, it’s friendly for stock market. From Year 1950 to Year 2019 the average S&P500 annual return in split Congress is at least 3.8% more than one party-controlled congress.
The biggest relief so far after Covid-19 outbreak is that the vaccine developed by Pfizer and partner BioNTech proved better than expected at protecting people from Covid-19 in a pivotal study. The progress of vaccine development seems to be on the track as expected. The news gives hope to those people who are undergoing another wave in Europe and our states. We believe that a well planned fighting against Covid-19 will ensure economy recovery next year.
Before next spring comes, in this dark winter, please take care of yourself and your families. You are welcome to discuss with me if you have any questions, as I am always here to help.
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