Why The US Senate Majority Could Be Worth $5T In Stimulus

Democrat Joe Biden has consistently held an 8% to 11% lead over President Donald Trump in national polls, and investors seem to be increasingly pricing in a Biden victory in the upcoming election.

The race for control of the Senate is much closer, and it could be the key to more than $5 trillion in stimulus for the economy,t he Sevens Report’s Tom Essaye said this week. 

Pricing In A Blue Wave: The PredictIt market suggests Biden has a 63% chance of victory over Trump, but Democrats have only a 56% chance of a “blue wave” clean sweep of the House, Senate and White House.

In the last month, the SPDR S&P 500 ETF Trust SPY has rallied 3.6% on the hopes that another major stimulus bill is coming in the near future. Essaye said Tuesday that a blue wave scenario would likely open the flood gates to more than $5 trillion in stimulus over the next year.

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“But if Republicans keep the Senate, then that $5 trillion stimulus is gone,” he said.

Wait-And-See On S&P: If Democrats don’t take the Senate, Essaye said more partisan squabbling over stimulus could be very bad news for investors.

“That could easily result in a 5%-10% pullback in stocks from current levels because the fundamentals in the market have not materially improved over the past month (the economic recovery has plateaued, the Fed isn’t getting any more dovish, and coronavirus cases are surging again in Europe and the U.S.),” Essaye wrote.

For now, Essaye advises investors to wait for the election results before aggressively buying the S&P 500. If Republicans do maintain control of the Senate, the potential market sell-off could provide a much more attractive entry point for long-term investors, he said.

Benzinga’s Take: It’s not necessarily bearish in the long-term if Republicans keep control of the Senate. Yet given lackluster fundamental economic improvements in recent weeks and the large degree of uncertainty surrounding the election outcome, the recent rally in stocks appears to stem from rising expectations of aggressive stimulus measures that may be hard to come buy if Congress is divided.