Morning Notes — De-Risking Higher Tax Rates

Narrative: Markets generally prefer a balance of power in Washington.  Expectations for Republicans to retain a narrow Senate majority largely de-risks assumed potential headwinds from higher tax rates and increased regulations under a Democrat-sweep scenario.  Equity markets would probably be fine with either Trump or Biden as President.  Given the presumed make-up in the Senate, a Trump win could result in larger/faster fiscal relief, while a Biden win could result in a more manageable, multilateral approach on trade.  Today’s preference for growth over value sectors follows lower bond yields as markets unwind large-scale fiscal spending expectations under a Democrat sweep scenario. 

Sectors: A near-singular focus on the election has partially distracted investors from slower assumed economic growth given increased US COVID infections.  As election uncertainty fades, we’d expect a preference for growth over cyclical/value sectors until there’s clarity on fiscal spending north of ~$1T or until there’s somewhat encouraging vaccine data.  The PFE/BNTX candidate is still expected to release data in early November with data on MRNA’s candidate expected by late-November/early-December.