Wall Street is betting on Joe Biden winning the presidency, the Republicans controlling Congress, and a divided government. As a result, there’ll be a much smaller stimulus package in early 2021 and few, if any, tax hikes.

“Gridlock is the most likely outcome,” Brian Gardner, government analyst for the Wall Street investment bank Keefe Bruyette and Woods, told clients in a report.

“Progressives had their wings clipped” as the Democrats failed to take the Senate and lost seats in the House. Bad feeling between leftist Democrats and conservative Republicans “will likely prevent widespread collaboration,” and the GOP Senate is unlikely to approve leftist heroes Elizabeth Warren or Bernie Sanders for Cabinet posts, Gardner added. He expects Congress will disappoint investors by spending less than Democrats’ promised $2 billion to prop up the economy, though more highway spending is likely.

“The likelihood that the Senate will not flip to the Democrats gives comfort that major legislation is unlikely,” James M. Meyer, chief investment officer at West Conshohocken-based Tower Bridge Advisors, which invests over $1 billion, told clients in a note. “That leaves the economic reins in the hands of the Fed. Investors should like that.”

Meyer added that, if the Senate remains Republican, “the stock market barely reacts to social unrest, crude political speech, wars or climate change.” It reacts, instead, to corporate profits and Federal Reserve interest rates. “No one can fault investors who want to see more of the same:” cheap borrowing rates, modest but steady growth, “and, hopefully, an end to the pandemic sometime in 2021.” He thinks stocks will rise over the next two months.

A divided Congress is unlikely to pass drug-pricing limits, so it’s a good outcome for pharmaceutical companies, while a Biden presidency, even without full Congressional support, could bring “a more rigorous and thoughtful approach to science,” Geoffrey Porges, analyst at SVB Leerink, told investors in a note excerpted in Endpoints News, a drug industry newsletter.

“Losing Arizona makes a Trump presidency difficult, and mail-in votes tend to trend 75% Democratic,” said Jeff Mills, chief investment officer of Bryn Mawr Trust Wealth, Wednesday morning after the Dow Jones Industrial Average jumped over 500 points to above 28,000 after the 9:30 a.m. opening.

Based on current Senate races, the GOP will keep its majority by some margin, he said, “setting us up for a divided government. That takes extreme scenarios off the table, including large tax hikes, major health care changes, and a huge stimulus package.”

Strange as it sounds, divided governments generally speaking result in stocks moving higher.

“Given the potential for extreme outcomes, ultimately a gridlock scenario ends up being a good thing. We can start to focus on earnings, versus handicapping major swings in policy,” Mills said.

Clean energy trades — such as solar — also are less attractive as investments under a divided government.

Key takeaways for investors under this scenario include a weaker U.S. dollar, compared with other currencies. “We see pressure on the dollar under a Biden presidency, with a reversal of tariffs and trade policy,” Mills said.

Tariffs tend to tamp down growth internationally, so scrapping the Trump-era tariffs would have the opposite effect.

“If tariffs are reversed, on a net basis, that’s better for growth in international markets, but has the opposite effect on the U.S. dollar,” he said.

Interest rates: With a smaller stimulus package, that means less possibility of inflation in the U.S. economy, and a small fiscal program, Mills said.

“If we get a stimulus package, it won’t happen until Congress is sworn in Jan. 3, and then likely wouldn’t pass before February,” he said.

Less inflation means less likelihood of higher interest rates, so yields on Treasury bonds have dropped early today in trading.

Healthcare: this sector, which includes insurers, biotechnology and pharmaceuticals, is “the biggest winner,” Mills said, since major changes to the Affordable Care Act or a so-called “public option” would be off the table.

“That was weighing on this area of the market.”

Big Technology: With a GOP-controlled Senate, regulatory scrutiny of big tech likely fades, which prompted share prices of Facebook (FB) and Amazon (AMZN) to rise in early trading.

Marijuana legalization: Voters in New Jersey, Arizona, Montana and South Dakota legalized recreational marijuana, and now 1 in 3 Americans now live in a state where adult pot use is legal. Despite the news, a big pullback punished the sector, with Canopy Growth (CGC), Aurora Cannabis (ACB), Tilray (TLRY) and Cronos (CRON) all down this morning.

Pot sales tax revenue will help cash-strapped New Jersey and towns that allow and tax marijuana retaillers , but it could take “two to three years” to start co even limited revenues, and by then neighboring states will have likely cut into New Jersey sales, Baye Larsen, vice president at Moody’s Investors Service, said in a report.

More drug-related initiatives were also passed, with Oregon becoming the first in the nation to decriminalize possession of “hard drugs,” while D.C. voters approved a measure decriminalizing “magic mushrooms” and other organic psychedelics. Denver, Oakland and Santa Cruz passed similar proposals.

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