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Jan. 6, 2021, 11:46 a.m. EST

Wall Street refused to believe the Georgia polls. Now there’s a big rotation under way.

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By Steve Goldstein

Such is the distrust toward polls that the late move toward the Democrats in the Georgia Senate runoff elections was treated with skepticism on Wall Street.

So financial markets have reacted to the news Raphael Warnock won one of two Senate runoffs in Georgia early on Wednesday, with Jon Ossoff leading the other and the votes remaining to be counted centered in counties around Atlanta. That puts the Democrats on the precipice of control of an evenly divided U.S. Senate, with Vice President-elect Kamala Harris getting the tiebreaking vote.

The yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.92% rose as high as 1.04% in expectations of greater spending. The dollar fell, with the euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.2506% trading over $1.23.

Futures on the small-cap Russell 2000 /zigman2/quotes/210301297/delayed RTY00 +1.72% rose, while broader S&P 500 futures /zigman2/quotes/209948968/delayed ES00 +1.20% and Nasdaq-100 futures /zigman2/quotes/210219788/delayed NQ00 +1.31% fell, with technology giants including Facebook /zigman2/quotes/205064656/composite FB +0.87% , Google owner Alphabet /zigman2/quotes/205453964/composite GOOG +1.10% and Microsoft /zigman2/quotes/207732364/composite MSFT -0.36% trading lower in premarket action on fears of regulatory action. A cannabis ETF /zigman2/quotes/204332491/composite MJ -5.19% rallied.

“While these probable victories raise the level of political uncertainty and certain sectors of the U.S. equity market may underperform (health care, tech for example), the macro implications of these election outcomes are clearly positive,” said Derek Halpenny, head of research for global markets at MUFG Bank in London. “There is now a chance of larger stimulus checks for U.S. households ($2,000 instead of $600) and an increased prospect of larger fiscal stimulus support in general going forward.”

“If the Democrats manage to pull off the upsets in Georgia, then a key difference this time around, in my view, is that many of those same Democrat players who were there in 2009 would likely use their latest opportunity to advance greater fiscal spending to support the economic recovery. In a more-pronounced economic recovery, we would expect an even further rise in Treasury rates, tightening of municipal and corporate bond spreads, weakening of the dollar, and higher performance of value stocks and emerging market equities,” added Brian Levitt, global market strategist at Invesco, in a note ahead of the results.

The steepening yield curve — the gap between 2- and 10-year yields surged to the widest since 2017 — should help the banking sector. Shares of JPMorgan Chase /zigman2/quotes/205971034/composite JPM -1.54% rose in premarket trade.

One big question will be whether there will be a desire to raise taxes on corporations or wealthy Americans, a move advocated by President-elect Joe Biden.

“Although a ‘blue sweep’ with a Democratic win in Georgia result may revive a discussion about U.S. tax hikes to come, we consider it unlikely that the new Treasury Secretary Janet Yellen would pursue policies that could stifle the U.S. economic recovery. Given her dovish leaning, her focus will likely be on more stimulus instead,” said Holger Schmeiding, chief economist at Berenberg Bank.

The buzz

Vice President Mike Pence will certify the congressional tally of Electoral College votes, as President Donald Trump publicly lobbied him to overturn the result.

The minutes of the last Federal Open Market Committee meeting will be published, as the public comments from various officials in recent days show a split on the issue of bond purchases. ADP reported a 123,000 decline in its estimate of private-sector payrolls for December, and after the open, the service-sector purchasing managers index will be released.

Tesla /zigman2/quotes/203558040/composite TSLA -4.86% saw its target price upped to $810 from $540 by Morgan Stanley, which reiterated an overweight call on the electric-vehicle maker. Barclays, by contrast, reiterated its $230 price target.

Trump signed an executive order banning Alibaba’s Alipay /zigman2/quotes/201948298/composite BABA -2.44% and seven other Chinese apps.

UnitedHealth /zigman2/quotes/210453738/composite UNH +0.28% agreed to buy Change Healthcare /zigman2/quotes/212846587/composite CHNG -0.58% at a 41% premium to Tuesday’s close, and AmerisourceBergen /zigman2/quotes/201066379/composite ABC -0.34% will buy the Alliance Healthcare /zigman2/quotes/203410933/composite WBA -1.62% businesses from Walgreens Boots Alliance for $6.5 billion.

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