With Democrats taking control of the US Senate, there would be significant changes to policy expectations. The implications of this for various asset classes include a weakening US dollar, lower margin prospects for US equity sectors with greater tax exposure and those with lesser exposure to public spending as well as potential upsides for Europe and emerging markets.
Six days into 2021 and market consensus is already broken. There should be no illusion that this is a major macro event that challenges several policy assumptions underpinning the current economic and market outlook. Above all, US fiscal policy should be looser than expected, US corporate and personal tax rates are likely to rise and domestic regulatory tightening should be stronger over the next two years.
This policy mix implies a steeper yield curve with long-term rates rising faster, a weaker US dollar beyond current expectations and US equity returns narrowing compared with ex-US markets. Regarding the longer-term political implications for Georgia and the United States (US), the runoff election restated the demographic shift occurring in urban and suburban areas of the South (Figure 1).