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How Georgia Elections Could Impact The Stock Market

Market Correction
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EDITOR NOTE:  With the passing of the holidays, we’ve gotten our fill of the seasonality stuff, namely the Santa Claus rally and the January Effect, to name a few. Well, this first week of the new year marks another major event that just might roil the markets in a way typically doesn’t happen. We’re talking about the Georgia runoff elections taking place on Tuesday, January 5. What’s at stake? If the Democrats take over the Senate, then the corporate tax cuts of 2017 may be in jeopardy. On the other hand, there are a number of fiscal measures that may actually benefit the stock market. But either way, the larger monetary and fiscal mechanisms, regardless of how they might help the market, are destined to crush the value of your dollars. Your purchasing power is practically doomed to decline, along with the dollar’s international reserve status. That’s more or less guaranteed. The question remains, what are you going to do about it?

The runoff elections for two U.S. Senate seats in Georgia next Tuesday have the potential to inject volatility into a high-flying stock market that has mostly looked past political turbulence in Washington this year.

Market participants say any complacency among investors could be misplaced, since if the Democrats win both senate seats, then the incoming administration of President-elect Joe Biden would have control of both chambers of Congress and may move to reverse the corporate tax cuts of 2017, putting company earnings and stock prices under some pressure.

However, a Democratic victory could also boost equities by raising expectations for more aggressive fiscal stimulus measures next year, on top of the billions of dollars deployed already by Congress.

These are reasons why the Georgia runoff elections could turn into a “big deal” for Wall Street, Michael Reynolds, investment strategy officer at Glenmede, said in an interview.

“If we get a shot in the arm with a larger fiscal package, you need to balance that out with the specter of increasing corporate tax rates,” said Reynolds.

Most analysts are forecasting a victory for the incumbent Republican senators from Georgia, and Betting market PredictIt gives Republicans a 65% chance of staying in charge of the Senate as of Thursday.

But Democratic challenger Rev. Raphael Warnock leads Republican incumbent Sen. Kelly Loeffler by 1.8 percentage points in a RealClearPolitics moving average of polls for one of the Georgia runoffs. And in RCP’s average of surveys for the other Georgia contest, Democrat Jon Ossoff is ahead of GOP Sen. David Perdue by 0.8 percentage point. 

Originally posted on MarketWatch

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