Why The Senate Matters More Than The White House To Investors On Election Day

All eyes are on Washington, D.C. this week as investors will get their first indication of who will be calling the shots from the White House for the next four years. But while President Donald Trump and former Vice President Joe Biden are getting most of the attention, the Senate races may end up being more important for investors than the presidential race.

Critical Senate Races: Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said Tuesday the recent spikes in coronavirus cases in the U.S. and Europe furthers the case that Senate control will be a key catalyst for financial markets even more so than the presidential election.

“Stimulus was always important to the economy and corporate profits – so therefore to the stock market – but it is even more important if consumers spend less due to Covid concerns (in the US) and/or additional lockdowns (as in Europe),” Zacarelli said.

Assuming Democrats maintain control of the House, there are four possible outcomes in terms of which party will end up with control of the White House and the Senate. Zacarelli said the worst potential outcome is a Biden victory with Republicans maintaining control of the Senate, an outcome he believes has less than a 20% chance of happening.

Related Link: How The US Federal Deficit And Trade Balance Have Changed Since Trump Took Office

Senate Uncertainty: If Democrats win control of the presidency and both houses of Congress, most experts anticipate an extremely large stimulus package ahead in the first quarter of 2021.

Many investors fear the outcome of the presidential election could be contested given the unprecedented number of mail-in and early votes being cast. However, Zacarelli said uncertainty surrounding control of the Senate could also derail the S&P 500 in the near-term.

“It is very unlikely that this is priced in and very likely that this would be very bad for markets, given the importance of Senate control in order to determine the timing and amount of fiscal stimulus, which is so important to the economy and stock market at this time,” he said.

Benzinga’s Take: According to the online prediction market PredictIt, the Senate race may end up being closer than the presidential race. As of Tuesday morning, PredictIt has Biden’s chances of winning the White House at 64% but Democrats’ chances of winning the Senate at just 61%.