-Biden wins, but without the Blue Wave that was expected
-The Fed reaffirmed their willingness to step in
-The outcome of the election isn't what the markets expected, but there was a run-up nonetheless
Hi there—here is this week's update!
Former Vice President Joe Biden wins the U.S presidency.
Market participants were assuming that there would also be a Blue Wave, where Democrats would control both the House and Senate as well.
The likelihood of a Blue Wave has diminished, which means that the passage of a larger stimulus bill is less likely. Without as much fiscal support, the U.S. recovery coming out of COVID will likely take longer, and there may be more business casualties as a result.
The Federal Reserve will likely have to play an even bigger role in our economic recovery, assuming the senate elections plays out as anticipated. This means that the Fed will have to throw more at the markets via monetary policy.
This week's Fed meeting indicated their willingness to purchase more assets, which might even include stocks at some point.
This week saw a remarkable run-up in the stock market from the election.
Our opinion is that the rally is primarily driven by continued optimism around abundant liquidity provided by the Fed and their ability to step in.
There were a few potential positive outcomes that market participants were focused on:
1) If Trump would be re-elected, there wouldn't be major tax hikes. This would be positive for the markets.
2) If Biden would be elected, there would likely be a Blue Wave. This would lead to an incredibly large stimulus package—bailing out Main Street.
It seems likely that neither of these scenarios will play out, but the markets rallied nonetheless. Our opinion is that the markets are saying that the Fed will buy more and prop up assets further.
To sum it all up, the Fed will be supporting the markets, but that doesn't mean that it will stop volatility in the near-term.
See you next week,
-Saul & The Round Team
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