Politics is often important to investors, but the way it matters is not always clear.
Compare the market reaction to Donald Trump’s 2016 win of the White House and its immediate reaction to the prospect of a double victory of the Democrats in Georgia, which gives the party control over the Senate (fair).
Bank stocks surged in 2016, while technology stocks initially declined and then lagged the market for months. Politicians had an easy explanation: Republicans prefer Wall Street, while Silicon Valley is a progressive stronghold.
Easy, but wrong, as the vote in the Senate in Georgia showed. The investor’s response to the Georgia vote was to buy banks and sell Big Tech.
Sure, politics have changed and Facebook and Amazon are now treated as bad guys by many on the left. They would be the biggest losers from the corporate tax cuts promised to partially roll back President-elect Joe Biden. The possibility of higher capital gains taxes with a democratically controlled senate should hit stocks that investors have also let down on fat unrealized gains.