The S&P 500 will sell off initially if Republicans win the presidency or Senate, a Wall Street stock chief says

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  • The S&P 500 will sell off initially if the Senate or Presidency remains Republican after the election, according to Stifel. 
  • In a Thursday note Stifel explained that the benchmark index may fall following this election outcome because hopes of a large fiscal stimulus will fade. 
  • The market has likely discounted a possible Democratic sweep, with an expectation of “big spending” in 2021 and 2022, said Stifel. 

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The S&P 500 will sell off if the Senate or presidency remains Republican after the election, according to a team of Stifel analysts led by Barry Bannister. 

In a Thursday note, Stifel said that if Republicans remain in control of the Senate or presidency, hopes of a fiscal stimulus package will fade, and that will weigh on the benchmark index. However, the analysts also explained that if the economy weakens after the election, they believe Republicans will approve a stimulus bill.

“The problem is S&P 500 weakness would precede spending,” Stifel wrote.

This is a “chicken and egg proposition,” the analysts said, and they’re not the only ones on Wall Street voicing a concern that in order for Washington to pass a fiscal package, the market must “break” first. 

Read more: JOIN US NEXT WEEK: How to invest during a volatile election season – a conversation with 3 top market experts

Stifel remains concerned about the very near-tem fall outlook for the S&P 500, listing “further price correction as a lack of clarity on election night in the Senate (recounts, etc.), a virus seasonal resurgence, weaker 2021 EPS estimates and weak inflation,” as factors.

The analysts also highlighted that the stock market has discounted a possible Democratic sweep leading to “big spending” in 2021 and 2022. And they forecast that a $3 trillion fiscal package could be passed if the Senate and White House turn Democratic after November 3. 

They added that a common “blue wave fear” among investors is higher taxes. But, they doubt that taxes will rise in 2021 as gross domestic product is the priority. Higher taxes are more likely in 2022, according to Stifel.