Georgia Senate Runoffs: Despite a Likely “Blue Wave,” Moderation May Continue

01.06.2021 - Viraj B. Patel, Head of Asset Allocation

While an official outcome has yet to be finalized, the US Senate looks to be turning blue. Having appeared to have won one Georgia Senate seat already, Democrats are poised to take control of both legislative chambers of the US Congress. With the Republicans currently holding 50 seats in the Senate, an evenly split Senate would rely upon Vice President-elect Kamala Harris to act as the tie breaker.

What Happens Now That Democrats May Have Won Both Seats?

Democratic hopes of a “Blue Wave” that were initially dashed in the November elections have reasserted themselves with their pending Senate victories in Georgia. However, the much-heralded sweep seems to have turned into a “Blue Ripple” as a larger Democratic majority in the Senate never materialized. In fact, Democrats saw their House majority shrink to the narrowest since 1901. Hence, we do not believe any major legislation will be enacted for the foreseeable future. Many progressive policies are likely to be met by opposition from some Senate Democrats with their own agendas as well as their Republican counterparts. 

As one example, Senator Joe Manchin, a moderate Democrat from West Virginia, has often found common cause with the Trump Administration. In addition, he has spoken out against the more ambitious portions of the Democratic agenda. Beyond opposing policies like “Medicare For All,” Manchin also has expressed concerns about changing procedural rules within the Senate. For instance, some Democrats have cited the current 60-vote filibuster rule (which stymies slim Senate majorities) as a target for repeal. This would allow legislation to be passed without requiring the support of the minority party and eliminate the more burdensome reconciliation process. Even if Democrats were to win both seats, their slim majority will likely make it challenging to pass such legislative items. 

Having said that, Senator Manchin appears to be a bit of a wildcard. For instance, he may favor tax hikes, including an increase in the corporate rate. However, a new tax package could be watered down more than many market watchers had initially forecasted. We also think that any tax increases would act as less of a drag on economic growth as they would likely be offset by more fiscal stimulus.

How Are Markets Likely to React?

While financial markets may experience some near-term volatility, we continue to think a more balanced outlook is warranted. This should be supportive of our neutral allocation across global equities. We ultimately believe investors’ focus will shift back to the ongoing synchronized global recovery and the vaccine rollout.

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.


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