Too close to call 

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November 2020 was one of the best stock market months ever. This was largely due to the outcome of the US elections. This was not because Trump lost to Biden, but because the dreaded Blue Wave failed to materialise. The big surprise in the American elections was not Biden’s win, but the strong populist undercurrent. The difference between the Republicans and the Democrats turned out to be much smaller than expected. Apparently, the opinion pollsters are still unable to gauge populists properly.

In Georgia, the elections for the two Senate seats ended undecided on 3 November. None of the candidates managed to secure at least 50% of the votes, which is required for a Senate seat in Georgia. Now the Democrats have 48 seats in the Senate and the Republicans have 50 seats. If the Democrats manage to secure those two seats in Georgia in the second round on Tuesday 5 January 2021, the position will be 50-50. Then Vice-President Kamala Harris, as President of the Senate, will have the deciding vote. This is why the second round in Georgia is likely to be the most expensive Senate election ever. Hundreds of millions of dollars are spent on just two Senate seats. At present, the difference in the polls between candidates is less than 0.5%.

If the Democrats get the majority in the Senate, we will still have the Blue Wave so feared by investors. Investors then cheered too early in November. The Blue Wave is not bad for the economy at all – on the contrary, the government stimulus package will be much bigger – but it is bad for the stock market. With a democratic majority, it will be much easier to raise taxes. If Trump’s tax measures alone are reversed, this means that approximately 10% extra net profits from companies will go to the US tax authorities. That has not yet been factored into the stock market prices. Another of Trump’s measures was far-reaching deregulation. With a Republican majority in the Senate, a lot of new legislation will not make it to the finish line, and in that respect, Biden is still a ‘lame-duck’ President, at least until the by-elections on 8 November 2022. If the Democrats achieve a majority on 5 January 2021, there will be a tidal wave of new legislation. The Democratic plans relating to the Green Deal will then be accelerated. That is a boost for sustainable investors but, on balance, the business community is not happy with more rules because they are at the expense of profitability.

A democratic majority in Congress also means an even higher US national debt. Under Trump, the Republicans and the Democrats seem to be fighting for who can increase the US national debt the fastest, but the financial markets are convinced that the national debt will increase much more under the Democrats. As a result, interest rates may rise and the dollar may fall in the event of a Democratic victory on 5 January. This could cause American shares to lag behind shares from the rest of the world next year. The extra impulse for the (world) economy, the higher interest rate, and the weaker dollar could set in motion a new rotation on the stock market. So expect a volatile start to 2021.

It is possible that the polls in Georgia do not give a good picture either and that once again the populist undercurrent is underestimated. In that case, the two seats will go to the Republicans and uncertainty will disappear for the stock market. Count once again on a positive response from the financial markets. It does mean, however, that the populists are strong and again difficult to gauge. The next neck-and-neck race is already underway. It will take place between Macron and Le Pen in 2022. Tackling the corona crisis, the many terrorist attacks, and the Gilets Jaunes, now temporarily repressed by corona, all argue in favour of Le Pen. The sixth Republic will then be a fact. The question is whether the euro and the European Union will survive Le Pen as President. In the run-up to this, foreign investors will be wary of European assets. Macron already feels the temper and is shifting to the right. Even if the polls predict that Macron will win, there is a risk of a populist undercurrent that is difficult to gauge. Foreign investors will then want to wait for the elections. But perhaps I am looking too far ahead now, first the elections in Georgia.

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