November 5, 2020
Maybe the best gauge of this, is how the 10-year yield is behaving.
Coming into the election, as the odds makers were pricing in a "blue wave," interest rates started pricing in a hotter inflationary future (driven by big government spending/clean energy package). With that, we had this aggressive move UP in in interest rates …
With the results of the past two days indicating a split Congress, yields have fallen back sharply.
A split Congress means an increase in corporate taxes and capital gains taxes becomes unlikely (at least until mid-term elections). It also means the big government spending package (i.e. funding for the clean energy transformation) becomes unlikely, with a Republican-led Senate.
This scenario adds visibility and certainty. Stocks like both.
That would put the "higher inflation" scenario back into focus (and would be a cue for lift off in the interest rate market).