What A Democratic Victory In Georgia's Runoff Election Means For The Stock Market

In a surprising turn of events, Democrats appear poised to take over control of the Senate, potentially setting up at least two years of full Democratic control in Washington.

What Happened? On Tuesday, Georgia held two Senate runoff elections. As of Wednesday morning, Democrat Rev. Raphael Warnock is the projected victor in one of the two Georgia Senate runoff races, while Democrat Jon Ossoff maintains a narrow lead in a second race that is still too close to call with an estimated 98% of the votes already tallied at publication time.

Why It’s Important: Online prediction market PredictIt now estimates Democrats have a 97% chance of gaining control of the Senate. Two Democratic victories in Georgia would split the Senate 50-50 with Vice President-elect Kamala Harris getting the tie-breaking vote.

Analysts and experts say Democratic control of the White House, Senate and House of Representatives would be great news for the Democratic agenda, but Democrats will have zero wiggle room on more progressive legislation.

In the near-term, President-elect Joe Biden has reportedly said Senate control would potentially allow him to make more progressive cabinet picks.

Investor Impact: Two areas in which investors could see a positive impact from a Democratic victory could be cannabis stocks and clean energy stocks. Cantor Fitzgerald analyst Pablo Zuanic said Democratic control of the Senate could be a “game changer” for cannabis stocks.

“We go from speculating what President-elect Biden could have done for cannabis reform via Executive Order (or by directives/’memos’ from his incoming Attorney General) and if the Senate would have held a vote on the SAFE act (banking reform) would have even taken a vote, to a new world, in which the question is more about the timing and scope of much broader reform for the cannabis industry,” Zuanic wrote in a note this week.

He said Trulieve Cannabis Corp TCNNF and Curaleaf Holdings Inc CURLF remain his top two stock picks among U.S. multi-state operators.

Wedbush analyst Daniel Ives said the outcome in Georgia could be great news for electric vehicle stocks and bad news for big tech stocks.

“To be blunt, it’s a clear negative for Big Tech as ultimately with a Senate now likely controlled by Democrats we would expect much more scrutiny and sharper teeth around FAANG names with potential (although still a low risk) legislative changes to current antitrust laws now on the table,” Ives wrote in a note.

Shares of Facebook, Inc. FB, Amazon.com, Inc. AMZN, Apple Inc. AAPL and other target tech stocks initially traded lower by more than 2% on Wednesday morning.

Ives said EV stocks like Tesla Inc TSLA, General Motors Company GM and Fisker Inc FSR have a lot to gain from the Democratic sweep.

“We believe a doubling down on EV tax credits and further consumer incentives and government initiatives around the EV sector will be on the horizon which is a major positive for Tesla, GM, Fisker, and other auto players/EV supply chain (QS, etc.),” Ives said.

All three stocks opened higher on Wednesday morning.

Benzinga’s Take: Wall Street initially appeared to see more overall negatives to a Democratic victory than positives, likely due to concerns over higher taxes and a potential increase in regulation. The SPDR S&P 500 ETF Trust SPY opened Wednesday’s session down about 0.5%, but was trading in positive territory at publication time.