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Stocks Could Fall 10 Percent If Democrats Win Georgia Senate Runoff Elections: Oppenheimer Strategist

Stocks Could Fall 10 Percent If Democrats Win Georgia Senate Runoff Elections: Oppenheimer Strategist

runoffs
Stocks Could Fall 10 Percent If Democrats Win Georgia Senate Runoffs: Oppenheimer Strategist. Image” Pexels

If Democrats win both seats in Georgia’s two runoff elections, they’ll gain control of the Senate in addition to the House and White House, which could trigger a 10-percent downward correction from current record stock- market levels, according to an Oppenheimer strategist.

Democrat Raphael Warnock is running against Republican Sen. Kelly Loeffler and Democrat Jon Ossoff faces incumbent Republican Sen. David Perdue in Tuesday’s election. Loeffler was appointed in December 2019 by Georgia’s Republican Gov. Brian Kemp to fill former Sen. Johnny Isakson’s seat after he resigned, citing health concerns. Perdue is running for reelection. Loeffler’s appointment was a controversial choice in Republican circles. Allies of President Trump wanted Kemp to go in another direction, NPR reported.

“A Democratic sweep of the two run-off elections in Georgia could cause the U.S. equity broad market to experience a downdraft of anywhere between 6 percent and 10 percent,” Oppenheimer chief investment strategist John Stoltzfus told clients on Monday.

The Senate has 50 Republicans and 48 Democrats. If Republicans win one of the two races, they will maintain control. If Democrats win both races, they’ll get 50 seats and control of the upper chamber with a tie-breaking vote from Vice President-elect Kamala Harris.

The stock market has generally priced in a Republican victory in at least one of the races, Oppenheimer noted. The firm said markets prefer a divided government with enough checks and balances to keep political power out of one party’s hands, CNBC Pro reported.

Investors have a lot at stake in the Georgia runoff elections, according to Oppenheimer.

However, a divided government is not universally considered a good thing. “A divided government is not a recipe for compromise,” E.J. Dionne Jr. wrote in an opinion piece for the Washington Post. “Instead, it’s a ticket to obstruction and the very sort of partisan brawling that moderate voters can’t stand.

“The belief that divided government guarantees moderate outcomes might once have been true when there was a solid moderate bloc in the Republican Party. But it should now be clear that it’s a destructive myth,” Dionne continued.

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Oppenheimer’s Stoltzfus warned that Democratic wins in both races could result in higher tax rates and more progressive policies.

“It is thought by not just a few folks on Main Street as well as on Wall Street that if (the) run-off results in a sweep for the Democrats — providing them with control of the Senate as well as the House — that it would bode ill for business with the likelihood that corporate tax rates could rise substantially,” Stoltzfus said.

The results of the runoff elections could take weeks to tabulate. Rural counties, which lean Republican, often report results before Democratic-leaning counties do, according to the Associated Press. That could produce a Republican lead in early results and a Democratic lead as cities report their tallies, Wall Street Journal reported.

A longer reporting time for results “could result in the potential for the equity markets to come ‘off the boil’ near term and to perhaps drift lower as investors ponder while votes are tabulated,” Stoltzfus said, according to CNBC.