It will be a disaster if the Senate goes Democratic. We lose the paradisiacal gridlock. We will be greeted with dramatically higher taxes. The anti-growth, redistributionists will take over and we will all be sunk.
That didn't happen. Sure, some techs got banged around, but for the most part the market loved what happened in Georgia.
Let's not waste each other's time. Let's talk about this market's reaction to the stunning upset in Georgia -- which could lead to the Democrats controlling the House, the Senate, and the White House -- and why the market went up, not down, defying all sorts of predictions that it had to get pummeled on the news.
First, the market abhors uncertainty. The Georgia runoffs created such uncertainty that it kept buyers away from stocks when they would otherwise be buying them. Why not wait to see? Or, as people did Monday, why not sell, even if it is off 2%, because it will be down even more if Democrats sweep.
Guess what? You are often not paid to wait and see. You are rarely paid to sell and then get back in. The prize goes to those with vision and fortitude - not to the timid. The sellers down 2% look particularly foolish.
Second, it looks like whatever the market normally thinks about gridlock, investors may be fed up with the negativity, the nastiness and the arbitrary and capriciousness with which the president has handled himself. This election should have been a gimme for the Republicans. Established incumbents; unproven insurgents. It wasn't, though, because the president, through his desperate, taped call, convinced Republicans that it would be rigged no matter what, so why risk getting Covid? He also convinced Democrats that they should vote in droves, lest the president be rewarded for his activities. I know half the people out there like Trump, but most people do believe in a modicum of decorum and are really sick and tired of the Republicans and Democrats squabbling, so why not get something done.
Third, what was it that we really feared if the Democrats came in? How about a raise in taxes? Maybe. But how about a break in taxes if the Blue Wave gets surfed by a change in state and local tax deductibility. Could happen - to the victor goes the spoils. Moreover, the Democrats won't come empty handed. They wanted to give much bigger stimulus packages to people and to states and to small business. I think this Georgia election cements the fact that there will be more money coming to people to tide them over until they get their vaccines. No wonder the retailers soared. You think you can get an 8 point move in Target (TGT) or a Dollar General (DG) for nothing? Best Buy (BBY) jumps three and Bed Bath and Beyond (BBBY) rockets six because of stimulus. Don't worry you, can still buy Costco (COST) or Walmart (WMT) at nice discounts.
Four, no matter what, the Democrats always seem to be tagged as the party of infrastructure. That means you can buy the stock of Caterpillar (CAT) still - yes still - even after a remarkable run. United Rentals (URI) ? It's so high, but the equipment rental company's stock can go higher if the Democrats can agree on projects that have been delayed by gridlock. Nucor (NUE) finally has a terrific day, because you can't have new infrastructure without the largest steel company in the country getting some big orders. Oh, and let's not forget aggregates: You need the rocks of Martin Marietta Materials (MLM) and Vulcan Materials (VMC) to build roads. Hackneyed, but it always works like a charm.
Finally, five, at last we get a little bump in interest rates, which is fabulous news for what had been the second worst cohort in the market last year: the financials. We have loved fintech or asset light banks. Now the money switched back to the money centers like JPMorgan (JPM) , the asset allocators and investment banks like Morgan Stanley MS and Goldman Sachs GS, and the bedraggled regionals like First Horizon (FHN) , Huntington Bancshares (HBAN) and Key (KEY) . Wow, coiled springs, all. And it's being done without much brokerage help. That comes Thursday as rates continue to chug up a little higher.
Now what about these tech stocks? The ones that got thrown away to make way for the industrials and the banks? What do we do with them? Aren't they as finished as the market was supposed to be finished if the Democrats take the Senate?
This one's a little more complicated. The techs had not one buy two headwinds facing them. The changing of the guard in the Senate is going to mean that Sen. Elizabeth Warren is going to be very powerful when it comes to banking, to antirust and to, yes, wealth. I would caution, however, that unlike Warren, many Democrats enjoy the fruits of their labor that are produced by technology moguls. They will only take things so far. Plus, the themes I outlined Monday that transcend elections, themes like digitization and the work anywhere thesis, don't stop because the Democrats might harden a stance against and so-called tech monopolies.
Let's take FAANG. Facebook has completed an about-face and now represents small- and medium-sized business formation. It's brilliant, and it is working. Facebook isn't perceived as the devil any longer. Do you really want to tell the people who are cowering at home that you want to punish the one service that is working: Amazon (AMZN) ? Apple (AAPL) just announced some awesome figures about how its service revenue keeps growth. They were ignored Wednesday. Not tomorrow. Netflix (NFLX) ? Harmless. And Google, now Alphabet (GOOGL) ? I think that an activist ought to break up Alphabet, get the value out of Youtube, cloud services, search, Waymo. But it's too big for an activist. Unless the activist is none other than Senator Warren.
The other headwind's more complex. People want to sell high growth stocks when rates soar. But that's not the case if rates tick up. And that's what happened today. I have made fortunes for investors at my old hedge fund with rates at 5%. One percent doesn't seem all that dangerous. Tomorrow, Micron MU reports. If it blows away numbers, we may very well forget why people sold these stocks. Sure, I know, the so-called playbook says sell these stocks and buy value plays. Don't look now but most of the industrials are hardly valuable.
Tech will rally, because it has growth. Most companies have seen their stocks go up because management cuts cost so with meager 3%-5% grow and a big buyback you get some gains. But there will always be buyers of companies that can growth quickly and always be interest, especially from young people to buy the next Tesla (TSLA) or the next Amgen (AMGN) or the next Microsoft (MSFT) . Those buyers took the day off.
They will be back. Maybe not tomorrow or the next day, but certainly when we see their quarters because they surf in the waters that are rising not falling and rising tides are lifting all of their boats.