TOKYO/NEW YORK- Global stock prices slipped and US bond yields rose on Wednesday as investors braced for the prospect that Democrats could win both races in a US Senate run-off election in Georgia, handing them control of the crucial chamber.
Along with their narrow majority in the House of Representatives, a ‘blue sweep’ of Congress could usher in larger fiscal stimulus and pave the way for President-elect Joe Biden to push through greater corporate regulation and higher taxes.
Democrat candidates took early leads in the twin Georgia Senate races, though the outcome may remain in doubt for days if the margins are razor-thin.
“Having control over both the legislative and executive branches could theoretically lead to sweeping changes to policy,” said Vasu Menon, investment strategy executive director at OCBC Bank.
“With Biden proposing to reverse President Donald Trump’s tax cut, increase the minimum wage, and strengthen oversight on various industries, some might argue that his agenda is not particularly market-friendly.”
Futures for the S&P 500 fell 0.43 percent, while Nasdaq futures shed 0.7 percent on fears Democrats could pursue tighter regulations on big tech firms.
Other industries, such as banks, oil and gas and healthcare, could come under heavier scrutiny, while infrastructure and alternative energy sectors could benefit.
Japan’s Nikkei fell 0.4 percent while MSCI’s index of Asian-Pacific excluding Japan erased earlier gains to stand almost flat.
The 10-year US Treasuries yield rose to as high as 0.987 percent, the highest level since March, on expectations of larger government borrowing.
“A market pullback seems both reasonable and healthy. But stocks won’t plunge to zero because there is a countervailing positive here,” said Phil Orlando, Chief Equity Market Strategist, Federated Hermes of a potential Democratic sweep.