If You Like Legislative Gridlock - MBrew

 

MARKETS Honk If You Like Legislative Gridlock

Francis Scialabba

While Joe Biden has a much easier path than President Trump to 270 electoral votes, Republicans are expected to retain control of the Senate, setting up potential legislative gridlock between the executive branch and Congress that makes LA rush hour seem tame.  In fact, the specific combo of a Democratic president, Democratic House of Representatives, and Republican Senate hasn’t happened since 1900.  Stocks still went wild Many investors had speculated a “blue wave” of Democratic candidates would sweep across America on election night. Such an outcome would have significantly boosted the chances of a coronavirus stimulus deal passing, but the prospect of more regulation and antitrust investigations under Democratic lawmakers gave Big Tech the heebie-jeebies.  Reality check: The “blue wave” ended up being more of a ripple, and Big Tech went gangbusters yesterday, powering the tech-heavy Nasdaq up nearly 4%.  According to Josh Brown of Ritholtz Wealth Management, U.S. stocks had their best post-election day rally ever. The biz implications A gridlocked Congress wouldn’t just help Zuck, Bezos, and Co. escape greater regulatory scrutiny. Healthcare stocks also jumped on the reduced likelihood of any significant drug pricing reforms passing. Uber (+15%) and Lyft (+11%) rounded out the market’s jolly mood with a policy win of their own: Prop 22 passed in California, protecting their gig-economy business model from an existential crisis. But buyer beware. The last time Congress looked similar to the one we could end up with (in a Biden win scenario) was from 2001–2003, when Republican president George Bush was dealt a Republican House, a Democratic Senate, and a national emergency. Over those two years, the Dow tanked 20% and the Nasdaq lost half its value. Bottom line: Without the support of the Senate, a Biden presidency could face an uphill battle to enact major policy changes or pass a sweeping stimulus deal. The knee-jerk reaction from investors? "Fine by us."