Wall Street ‘euphoric’ as blue wave seen as unlikely, making gradual change harder

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Wall Street shares are skyrocketing despite extraordinary political uncertainty and a very real possibility that Democrat Joe Biden could win the 2020 election as several battlefield states remained too close to call on Thursday.

Stocks closed higher after Thursday’s trading session, with the Dow Jones Industrial Average and S&P 500 each adding nearly 2%, marking the fourth consecutive day of gains.

Typically, uncertainty can cause markets to fall. However, the election results so far have performed better than investors expected.

Brian Walsh, Jr., Senior Financial Advisor at Walsh & Nicholson Financial Group told FOX Business that Wall Street expected a “blue wave,” meaning Democrats would take over the Presidency and Senate, which he now considers unlikely.

“If the current projections are correct, we will have a Democratic President and a Republican Senate that will be a positive catalyst for the stock markets,” said Walsh Jr. “Wall Street breathes a sigh of relief now that more regulation and fiscal policies progressives are apparently irrelevant. ”

The VIX, which measures volatility and fear on Wall Street, also fell from a recent high of 40 to around 28 as “the worst fears subsided,” Jon Burckett-St. Laurent, a senior portfolio manager at Exencial Wealth Advisors, told FOX Business.

So far, Democrats have lost five seats in the United States House of Representatives, for a total of 208 to 190 for Republicans.

In the Senate, Republicans currently have 48 seats against 46 for Democrats.

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A divided government would reduce the likelihood that some of the more progressive items on Biden’s agenda would pass if he won the presidency.

This is good news for Wall Street, which was not a fan of some of the tax policies, including tax hikes on the rich, an increase in the corporate tax rate and increased regulation.

Burckett-St. Laurent added that investors were also concerned about the antitrust action and the major changes in healthcare.

The prevailing opinion is that no matter who wins, there will be a stimulus policy ahead, which would energize the markets.

Tax-free stimulus contributed to the “euphoric” response on Wall Street, said Ryan Giannotto, CFA, director of research at GraniteShares.

“It’s the Wall Street equivalent of a free lunch: all the benefits of the stimulus without a penny of the costs,” Giannotto told FOX Business. “Moreover, despite the social and political implications of a divided or contested government, Wall Street follows a much simpler calculation – it all revolves around the ‘Benjamins’.”

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Fed Chairman Jerome Powell said on Thursday that the central bank will continue to support the US economy regardless of the outcome.

The Fed purchases a total of about $ 120 billion in treasury bills and mortgage-backed securities each month and intends to keep interest rates near 0%.

Four key races, Pennsylvania, North Carolina, Georgia and Nevada, remained too close to be called Thursday night.

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