The Finance 202: Democratic wins in Georgia runoffs could mean bigger spending Congress

A Democratic sweep would hand the party control of the Senate, boosting the odds the Biden administration could steer more economic relief spending through Congress. Investors see fiscal stimulus as bullish for stocks but could also worry about what an all-Democratic Washington means for corporate taxes and regulation. 

“Market participants expect more fiscal stimulus, regulation and higher taxes if Democrats win and the initial reaction would be positive as stimulus would likely come first, JPMorgan Chase & Co. credit research analysts led by Stephen Dulake wrote in a note last week,” according to Bloomberg News’s David Caleb Mutua and Carolina Gonzalez. 

Subadra Rajappa, head of U.S. rates strategy at Société Générale SA, told Bloomberg News that a Democratic sweep could push yields on Treasuries higher as bond investors anticipate more federal borrowing. Meanwhile, inflation expectations already have been rising in step with Democratic odds in the Georgia contests: 

Other analysts who try to make sense of Washington for Wall Street see more downsides for corporate interests if Democrats wrest control of the Senate. In the immediate term, Biden could fill out his administration with more liberal nominees, Compass Point’s Isaac Boltansky writes. That “could lead to a more aggressive administrative agenda.” 

A Democratic Senate would be more likely to pass corporate tax hikes. And Democratic committee chairs would create headaches for corporate executives. Sen. Sherrod Brown (D-Ohio), at the helm of the Senate Banking Committee instead of Sen. Patrick J. Toomey (R-Pa.), for example, would “likely haul the big-bank CEOs up for a hearing to grill them on all sorts of things, including whether they’re doing enough to fight income inequality,” Capital Alpha’s Ian Katz writes. “Even if those hearings don’t lead to legislation, they can create short-term headline risk and put certain companies and sectors of the finance industry on the defensive.”

The team at Evercore ISI, in a note out this morning, sees a Democratic sweep of the Georgia races prompting “a powerful internal market rotation as investors reprice for a high fiscal / some taxes / more green / more regulation outcome than Biden with divided government, with the market likely down on net overall on the day.”

David Perdue and Sen. Kelly Loeffler, the Republican incumbents fighting to keep their seats, would rather spend the closing days of the race talking up the need to provide a check on the incoming Biden administration. Instead, Trump — the first Republican presidential candidate to lose Georgia in 28 years — has thrust himself back into the spotlight. He brings with him his ongoing battle against Republicans he deems insufficiently loyal, including Georgia’s Republican governor, Brian Kemp. 

From the Atlanta Journal-Constitution’s Greg Bluestein:

Trump even told Georgia Secretary of State Brad Raffensperger (R) his refusal to bend to the president’s demands could doom Perdue and Loeffler. “You have a big election coming up and because of what you’ve done to the president — you know, the people of Georgia know that this was a scam,” Trump said on the call. “Because of what you’ve done to the president, a lot of people aren’t going out to vote, and a lot of Republicans are going to vote negative, because they hate what you did to the president.”

On Friday, Trump called the runoffs “illegal and invalid” in a tweet: 

The Republican candidates are “trying hard to avoid becoming collateral damage,” Cleve R. Wootson Jr. writes. Both are dodging questions about the effort by a dozen of their Senate Republican colleagues to block certification of Biden’s electoral college win on Wednesday. Perdue responded to the revelation of Trump’s Saturday call by expressing outrage it was recorded. 

From CBS News reporter Caitlin Huey-Burns:

But Trump will get the last word: Both he and Biden are set to headline rallies in the state tonight. 

But a rebound may not be far off: “Headed into 2021, the U.S. faces a surge in coronavirus cases, new restrictions on business, cautious holiday shopping and slowing economic growth. Forecasters anticipate that the Labor Department’s December jobs report, due to be released Friday, will show the labor market closed the year on a weak footing,” the Wall Street Journal’s Harriet Torry reports.

“As the pandemic drags into another year, however, economists see several reasons for optimism. First, the recently enacted pandemic-relief legislative package will pump $900 billion into the economy in coming months. Second, with much of the services sector hobbled by the pandemic, Americans have been saving an unusually high share of their income since spring, when the pandemic first prompted widespread restrictions on business activities.”

• More than 20,642,000 cases have been reported; more than 350,000 have died. 
• Americans are struggling to get vaccinated: “After months of anticipation, millions of doses of the two authorized coronavirus vaccines — made by Pfizer-BioNTech and Moderna — are flowing into hospitals and health departments across the nation, putting the end of the pandemic in sight. But Americans trying to access shots are encountering systems that vary widely county to county and that, in many places, are overwhelmed,” Brittany Shammas and Lori Rozsa report.
• Trump questioned the death toll as it surged past 350,000: “Speaking on the Sunday morning news shows, the nation’s top health officials, including Anthony S. Fauci, director of the National Institute of Allergy and Infectious Diseases, and Surgeon General Jerome M. Adams, contradicted Trump’s claim that the counts are ‘far exaggerated.’ The nation topped or neared 200,000 reported cases for the sixth straight day on Sunday,” Meryl Kornfield and Shayna Jacobs report.
• McConnell, Pelosi’s homes vandalized: “The homes of Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi were vandalized days after Congress failed to approve a measure to increase coronavirus stimulus checks to $2,000,” NBC News’s Minyvonne Burke reports.

• Delta CEO expects positive cash flow by Spring: “In his new year note to employees, Ed Bastian said that company will likely ‘experience two distinct phases during the next 12 months,’” Reuters’s Aishwarya Nair reports.

The bet is that the good news will continue: “Investors ended one of Wall Street’s wildest years on record by piling into everything from bitcoin to emerging markets, raising expectations that a powerful economic comeback will fuel even more gains,” the Wall Street Journal’s Amrith Ramkumar reports.

“The vast climb known as the ‘everything rally’ accelerated late in the year, sending the S&P 500 to its 33rd record of 2020 last week. Following an early-year collapse, the broad U.S. equity gauge, global stocks and an index of raw materials each rose at least 35 percent from the end of March through the end of the year, only the third time in figures going back five decades that all of those investments have climbed so much in such a short time, according to Dow Jones Market Data. Both of the previous nine-month periods were in 2009 exiting the financial crisis.”

• IPO craze brings bubble worries: “The IPO market is manic. Stocks haven’t been this expensive since the dot-com era. The Nasdaq 100 has doubled in two years, leaving its valuation bloated — all while volatility remains stubbornly high … It was nearly impossible as 2020 ended, with interest rates pinned near zero and the federal government unleashing another $900 billion into the economy. But history offers clues, and a raft of current market conditions meet criteria that would likely be found on a bubble checklist,” Bloomberg News’s Vildana Hajric and Elena Popina report.

Bitcoin continues its record tear: “The digital currency extended its record-smashing rally on Saturday, beginning the year with a surge over $30,000 for the first time, with ever more traders and investors betting that it is on its way to becoming a mainstream payment method,” Reuters’s Alden Bentley reports.

“The price of the world’s most popular cryptocurrency traded as high as $33,099 on Saturday, with almost all other markets closed over the first weekend in 2021. It was last up about 12 percent at $32,883. Bitcoin advanced more than 300 percent in 2020, and with the latest leg higher has added more than 50 percent since crossing $20,000 just two weeks ago.”

Two Biden aides will recuse themselves on BlackRock-related issues: “A Biden transition official said the incoming administration expects Brian Deese, Biden’s pick to lead the White House National Economic Council, and Wally Adeyemo, who slated to be deputy treasury secretary, to recuse themselves from matters pertaining specifically to BlackRock for an ‘appropriate period’ determined by law and an ethics agreement that is still in development,” Yeganeh Torbati reports of the two alums of the world’s largest asset manager.

“BlackRock has a lot at stake. Janet L. Yellen, Biden’s nominee to run the Treasury Department, has been sharply critical of moves by the Trump administration to ease oversight of companies such as BlackRock. If Yellen tightens restrictions, the company could find itself in a much different regulatory environment, potentially forcing it to set aside more reserves and hire more compliance officials.”

Yellen is facing scrutiny of her own over paid speeches to Wall Street’s biggest names: “Yellen has raked in more than $7.2 million in speaking fees from Wall Street and large corporations including Citi, Goldman Sachs, Google, City National Bank, UBS, Citadel LLC, Barclays, Credit Suisse, Salesforce and more,” Politico’s Alex Thompson and Theodoric Meyer reported over our break.

“Yellen, the former chair of the Federal Reserve, brought in nearly $1 million giving nine speeches to Citi alone. She earned more than $800,000 speaking to Citadel, a hedge fund founded by the Republican megadonor Ken Griffin. She also spoke to the law and lobbying firm Pillsbury Winthrop Shaw Pittman.”

• Xi Jinping is trying to box out Biden on trade: “China’s leader has in recent weeks made deals and pledges that he hopes will position his country as an indispensable global leader, even after its handling of the coronavirus and increased belligerence at home and abroad have damaged its international standing,” the New York Times’s Steven Lee Myers reports.
• Manufacturers want more “Buy American” policies: “Some economists and trade experts said such government purchasing might help some companies but not the industrial sector overall. The policies carry risks including higher prices and retaliation from other countries against U.S. exports, said some executives and economists,” the WSJ’s Austen Hufford and Bob Tita report.

Trading in three Chinese companies will be suspended before Biden takes office: “The ministry of commerce said in a statement that China will ‘take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises,’ according to the state-run Global Times,” CNBC’s Tucker Higgins reports.

“The NYSE said on Thursday that it will delist China Telecom Corp. Limited, China Mobile Limited, and China Unicom Hong Kong Limited. Trump signed an order in November that barred Americans from investing in companies it alleged were connected to the Chinese military. The commerce ministry said that the U.S. was ‘abusing national security and using state power to crack down on Chinese enterprises’ …”

Many places raised their floor as the new year began: “On Jan. 1, 20 states and 32 cities and counties [raised] their minimum wage. In 27 of these places, the pay floor will reach or exceed $15 an hour, according to a report released on Thursday by the National Employment Law Project, which supports minimum-wage increases,” New York Times’s Gillian Friedman reports.

“The movement’s strength — a ballot measure to increase the minimum wage in Florida to $15 by 2026 was passed in November — could put renewed pressure on Congress to increase the federal minimum wage from $7.25 per hour, where it has been since 2009. President-elect Joseph R. Biden Jr. has endorsed $15 an hour at the federal level and other changes sought by labor groups, like ending the practice of a lower minimum wage for workers like restaurant workers who receive tips.”

OPEC sees six months full of risk: “OPEC sees plenty of downside risks for oil markets in the first half of 2021, its secretary general said on Sunday, a day before meeting allies led by Russia to discuss output levels for February,” Reuters’s Vladimir Soldatkin and Alex Lawler report.

“In December, OPEC+ decided to increase production by 0.5 million bpd from January as part of the 2 million bpd gradual rise this year but some members have questioned the need for a further boost due to spreading coronavirus infections.”

Deutsche Bank chief wants bank to play leading role in European consolidation: “Christian Sewing, who is pursuing a long-term drive to boost earnings power at Deutsche after years of underperformance, has consistently said that his priority was to complete a turnaround by 2022,” Reuters reports.

“Talks on an all-German banking merger with Commerzbank failed in 2019 and, with a stock market value of just 18 billion euros ($21.9 billion), Deutsche would be an affordable target for a more richly valued potential acquirer.”

Wall Street eyes Colorado’s water: “In the last few years, a new force has emerged: From the Western Slope of the Rockies to Southern California, a proliferation of private investors like Greenstone have descended upon isolated communities, scouring the driest terrain in the United States to buy coveted water rights,” the Times’s Ben Ryder Howe reports.

“As investor interest mounts, leaders of Southwestern states are gathering this month to decide the future of the Colorado River. The negotiations have the potential to redefine rules that for the last century have governed one of the most valuable economic resources in the United States.”

Fears over money laundering are leading to a crackdown: “The provisions tightening scrutiny of the antiquities market were contained within the sprawling National Defense Authorization Act, which Trump vetoed and which the House and Senate voted to override on Monday and on Friday,” the Times’s Zachary Small reports.

“Dealers resisted the move. But with the new legislation, Congress moved to broaden the 1970 Bank Secrecy Act, which increased federal scrutiny of financial transactions, to include the trade of ancient artifacts. Exactly how the new law works will be determined over the next year by the Financial Crimes Enforcement Network, a bureau within the Treasury Department, in consultation with the private sector, law enforcement and the public.”

Bezos, Musk lead billionaires in padding wealth. “Billionaires as a class have added about $1 trillion to their total net worth since the pandemic began,” Christopher Ingraham writes. “And roughly one-fifth of that haul flowed into the pockets of just two men: Jeff Bezos, chief executive of Amazon (and owner of The Washington Post), and Elon Musk of Tesla and SpaceX fame.” Here’s how their respective net worths have climbed in recent years:

• Georgia holds runoff elections that will determine the Senate majority

• The Fed releases minutes from the FOMC’s December meeting
• Congress counts the electoral college votes, the final step in the 2020 presidential election

• The Labor Department releases the latest weekly jobless claims

• The Labor Department releases the December jobs report