With a thin majority in both houses of the country’s Congress prosecuting the policy agenda of the incoming administration, investors expect the Democrats to deliver increased stimulus to support households and businesses in the US.
Munro Partners’ Nick Griffin. Arsineh Houspian
“You’re more likely to get more fiscal spending, so you’re more likely to get better growth or a better recovery out of COVID,” said Munro Partners chief investment officer Nick Griffin.
Following the $US900 billion ($1.3 trillion) in US government support approved in the days before Christmas, Mr Griffin said he expects another spending package in the order of $US600 billion ($770 billion) in March.
Growth stocks hit
The expected lift in inflation from a stronger recovery pushed yields on 10-year US government bonds above 1 per cent for the first time since March, supporting banks shares but weighing on growth stocks.
Shares in technology were pummelled on Thursday as expectations of the value placed on future earnings were lowered based on the improved near-term outlook for growth and yields.
“The big tech companies have been sold off in order to fund investment into some of those companies that have lagged behind,” said Tribeca Investment Partners portfolio manager Jun Bei Liu, naming the miners and banks a key beneficiaries.
On Thursday shares in Afterpay fell 4.2 per cent to $108.85 and Xero lost 5.1 per cent to close at $140.53, while ANZ shares climbed 3.8 per cent to $23.64 and Westpac rose 3.2 per cent to reach $19.99.
Swell’s Lachlan Hughes: Democrat majority does not undermine the investment thesis for Facebook and Alphabet. James Brickwood
While regulatory intervention against the US technology giants by a Democratic-led administration has also previously been raised as a concern, Swell Asset Management chief investment officer Lachlan Hughes said fundamentals remain intact.
“A Republican majority in the Senate would have been preferable, however it does not undermine the investment thesis for Facebook and Alphabet,” Mr Hughes said.
Resources boom
ASX-listed oil and gas producers also jumped, with the oil price boosted by the improved US demand outlook, as well as expectations that the US supply may fall with the incoming administration expected to take a tough line on the sector.
Among the best performing shares in the local energy names was Santos, which jumped 7.4 per cent to $6.95, and Oil Search, which added 6.9 per cent to hit $4.16.
The Biden administration is expected to push domestic and global efforts to decarbonise economies, weighing on the outlook for oil and gas companies while boosting materials companies with an exposure to the structural changes in energy, transport and electrification.
With the secondary boost from the reflation trade, shares in lithium miner Galaxy Resources jumped 9.1 per cent to $2.87 while IGO shares jumped 7.4 per cent to $7.57.
Taking control of the Senate
With 50 of the 100 seats, the Democrats take control of the Senate with support from two independents and a rule that gives the Vice-President the deciding vote in the event of an evenly-split chamber.
That gives them control of both houses of the legislature after the party retained control of the House of Representatives in November’s election, albeit by a slim margin.
The election result is narrow enough that more drastic reforms are unlikely to make their way through both chambers successfully.
“The narrow lead by the Democrats means that the most progressive parts of President-elect Bidens policy platform are unlikely to come to fruition,” said JP Morgan global market strategist Kerry Craig.
“Significant tax reform for companies or individuals are much more challenging to pass with such a narrow lead and the impact on corporate earnings may be less severe than feared,” Mr Craig added.
While Mr Griffin argued that taxes may rise, they are unlikely to go up anywhere near as much as the Democrats originally proposed and the cost could be countered by the benefit to a company from further government spending.
The Senate win is in contrast to much of the commentary that followed the results from the November 2 election, which were widely characterised as having delivered a Republican-controlled Senate.
“The election outcome at the time had the market believing that it was going to be a very split government in the US and nothing will get through,” Ms Liu explained.
The improved economic growth expectations pushed the gold price sharply lower through the night on Wednesday, with spot market prices falling from near $US1960 an ounce to just above $US1900 by the early hours of Thursday as the results from the Senate battle hardened in favour of the Democrats.
Meanwhile, the outlook for more government debt issuance helped push bitcoin to a fresh record near $US37,800.

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