What Georgia Senate run-off means for markets?

• Run-off race in Georgia will determine who controls Senate

• Democrats have already won one of two seats

• Second seat is projected to be won by Democrats as well

• Democrat-controlled Congress means bigger stimulus

• US2000 outperforms US100 on the news

Run-off Senate race in Georgia that was held yesterday has gathered a lot of attention in the markets. Two seats are up for grabs and both were held by Republicans before. However, the Associated Press has already called one of the races for Democrat Raphael Warnock. The second race between Democrat Jon Ossoff and incumbent Republican Senator David Perdue is said to be too close to call now but media reports signal that Ossoff's lead is widening. If both seats are won by Democrats it would mean a 50-50 split in the Senate. However, in such cases the tie-breaker vote is being cast by the Vice President meaning that Democrats will effectively take control of the Senate and will have control over the both chambers of Congress as well as the White House.

What does it mean for the United States?

In short, Democrats will have full control with both Congress and the White House meaning that they can push their agenda. It will impact the outlook for stimulus as it was already hinted by President-elect Joe Biden that should Democrats win two seats in Georgia, the path towards $2,000 stimulus checks will be much easier. Moreover, the chance of passing another big stimulus package would significantly increase. Last but not least, Democrats would have it easier to deliver on some of their major policy points, like for example accelerating the shift towards renewable energy sources.

What does it mean for markets?

This is a tricky question. Bigger stimulus is positive for growth and should have a positive impact on the stock markets. However, winning two seats in Georgia would also make it easier for Democrats to go forward with reverting some of Trump's tax cuts, which could serve as a drag on stock market gains. When it comes to stocks that could benefit from Democrats taking control, cyclicals in general should be viewed as winners. Apart from that, renewable energy as well as the cannabis stocks could benefit due to Democrats' agenda being generally positive for these sectors. On the other hand, tech stocks could be losers as antitrust actions may gain traction under Democrat lead.

Wall Street reaction

While the second Senate race still has not been called, futures markets are already reacting as if Democrats have won both seats. US2000 makes big gains ahead of the Wall Street open as a bigger stimulus and Biden's infrastructure plan would benefit small-cap stocks the most. On the other hand, the plunge in US100 highlights that markets are starting to position for tech struggles once Democrats take control over Congress and the White House.

US2000 rallied as 'Blue Wave' became a real option. Small-cap index futures jumped above a recent all-time high ahead of today's Wall Street open. Price pulled back from daily highs but remains close to the 2,030 pts resistance zone. Source: xStation5

Completely different reactions can be spotted on the US100. Tech index plunged from an overnight high at around 12,845 pts to a daily low below 12,500 pts amid worries that a Democrat win will bring bigger scrutiny over Big Tech firms. Index managed to recover part of the loss and climbed towards 12,600 pts area but still remains deep in red. Near-term resistance zone can be found at 12,650 pts. Source: xStation5