Last Week Recap:
The market was up big last week as the election results came in. The S&P 500 was up 7.3% which more than makes up for last weeks fall. The Dow was up 6.89% and the NASDAQ up 9.05%. Investors seemed to focus on the likely hood of a split government that might be able to get additional stimulus approved but restrict many of the sweeping changes under a blue wave. All S&P 500 sectors finished higher led by technology (9.67%) as a split government might limit some of the anti-trust actions taken against the largest players. The Fed met last week as well but it was mainly a non-even as it was anticipated that they would not make any changes to their continued accommodative stance. However, Chairman Jerome Powell acknowledged that the Fed was not out of ammunition yet to continue to support the economy especially if a slit government isn't able to produce enough fiscal stimulus. The dollar continued to decline under this possibility. However, keep in mind that all of this came during a week where new daily Covid cases in the U.S. are setting all time highs.
The Week Ahead:
Although over the weekend the election has been called in favor of Biden, the uncertainty is not completely over. Trump has maintained his stance that he will contest the results and probably more importantly we still do not have a definitive outcome on who will control the Senate. As of this writing, Alaska and North Carolina have not been called but assuming that the GOP with those states it still comes down the run off in Georgia. This said, I think most investors are moving forward under the assumption of a split government. However, as an Advisor, it still warrants considering planning on the possibility that we still get a Blue Wave. The markets are starting the week continuing with the post-election rally. Over the past several weeks we have seen a big divergence in market performance on what some might call the "Blue Wave" trade and the "Trump Trade". With the likely hood of a split government we may see a little unwinding or reversion to the mean on these trades.
Source: Seeking Alpha, TD Ameritrade, Y-Charts, J.P. Morgan.