Natixis: Thoughts as America wakes up

November 4, 2020

As we rise and shine and have no outcome to the elections, here are some thoughts:

• The worst case bear scenario has been avoided:  massive problems at the polls with social unrest widespread.
• Things went relatively smooth.  Period.  End of story. 
• This ‘contested election’ is one over counting mail-in votes, not voter fraud, tampering, voter intimidation, etc.  Big big difference.
• Courts don’t want to get involved with election outcomes.  You can threaten Supreme Court action but they don’t want anything to deal with that outcome.

The major point that you can’t overlook right now:  It looks like Republican will retain the Senate. This is probably far more important for financial markets than the outcome for the Presidency.

• A Republican Senate basically means gridlock.
• Gridlock means no Green Deal.  No tax hike.  No massive fiscal stimulus.  
• It also means that there will be some fiscal deal, smaller than the Blue Wave but certainly not $0.
• The reflation trade is probably now on hold:  rates will most likely be range-bound which means that banks might have a tough slog.
• This probably helps to favor Growth over Value and a supportive backdrop for tech. 

All of this probably puts a focus on fundamentals:

• Monetary policy is highly accommodative
• Fiscal support will be coming but probably much more modest
• Earnings matter and the earning backdrop has been very strong this quarter
• Investors were leaning bearish coming in.  The worst case scenario looks to have been avoided.  Relief rally because of that alone.