Investing Pros And Cons Of A Blue Washington

The SPDR S&P 500 ETF Trust SPY rallied once again on Thursday, and investors are clearly feeling optimistic about the economy’s near-term outlook after Democrats successfully gained control of the Senate earlier this week.

While a Democratic “blue wave” in Washington is certainly bullish for the market in several key ways, Commonwealth Financial Network chief investment officer Brad McMillan said Wednesday there are both pros and cons to Democrats running the show.

Blue Wave Pros: The biggest near-term pro for investors is that Democrats now have a clear path to more aggressive stimulus measures, including the possibility of $2,000 stimulus checks. McMillan said the federal government would likely also provide much-needed help for state and municipal governments.

Related Link: 6 Key Economic Projections For 2021

In the longer term, McMillan said investors can expect increased infrastructure spending and more constructive trade policy following four years of isolationist policies from the Trump administration.

Blue Wave Cons: While Democratic policies could serve as a major tailwind for many companies, the impact of the blue wave is not all positive.

McMillan said investors should brace themselves for higher taxes on both businesses and individuals. Higher tax rates will eat into earnings and potentially weigh on stock prices. In addition, McMillan said Democrats will likely ramp up anti-business regulations, especially on big tech companies.

Nothing To Fear: While Democrats certainly have a clear path to implement their policies in the next two years, McMillan said their razor-thin majorities in both the House and the Senate should prevent them from pushing through overly radical legislation.

“Biden himself is also a centrist, more than anything else. While the Republicans may have lost the leadership of both houses, they still have commanding minorities that can block anything out of the mainstream,” McMillan said.

Benzinga’s Take: While the Republican party is typically seen as the party of big business, the stock market has performed very well throughout history under Democratic leadership. Since 1948, the S&P 500 has averaged a 14% annual return during years in which Democrats control the White House and both houses of Congress.