"The markets gave an initial positive opinion on the outcome of the American elections, envisioning a Democratic presidency and a Republican Senate. But actually we still don't know how it will end”. This is what Alessandro Fugnoli, strategist of the consulting firm Kairos, affirms in the last episode of the monthly podcast On the fourth floor.
“We have to wait for the outcome of the ballot to be held in Georgia on January 5th and that it will assign two seats in the Senate – explains Fugnoli – Depending on how it goes, we will know if the Senate will be republican or democratic. The two possibilities offer different scenarios for the next two years, i.e. until the mid-term elections of 2022, which could once again change the composition of the American Congress".
So let's see what the two scenarios look like.
If the Senate remains in the hands of the Republicans, "the Biden program it will be further diluted – continues Fugnoli – There will certainly be concessions from the Republican Senate to the Democratic administration (especially in terms of the environment, infrastructure and health), but these will not be particularly incisive measures”.
If instead the Senate passes to the Democrats, "these will be able to implement their program in full freedom for the next two years - underlines the Kairos strategist again - Even if they will have to deal with the strength that the Republicans have shown to have in the country and therefore there will still be a search for a trade-off, which in itself is good news for equity markets.”
What we can say starting today, according to Fugnoli, is that "the Fed will work to offset any outcome emerges from the elections in Georgia”. In other words, with a Republican Senate and less expansionary fiscal policy than expected, the Central Bank will tighten monetary policy. Otherwise, in the face of massive interventions by the Biden administration, Federal Reserve policy will remain expansive, but there will be no need for particularly incisive new initiatives.
The other element to consider in these months is the variable vaccines, which “can significantly change the composition of the share price increase in the world – continues Fugnoli – If the solution to the pandemic remains far away, the stocks to be preferred remain those of the technology and pharmaceutical sector. If, on the other hand, a solution to the epidemic emerges, the sectors hitherto penalized could become the new protagonists of the share price increase. At the moment it is too early to draw conclusions. The process will take a few months: there have been false starts and maybe there will be others, but sooner or later the rotation will come".
