It’s Official, the Results are in.

It’s official, Congress has formally confirmed the election of former Vice President Joe Biden as the 46th President of the United States after stomping out efforts by a small group of Republicans to object to the acceptance of Electoral College wins for Biden in Arizona and Pennsylvania.

Normally a routine process, it was anything but. The House and Senate began the process of counting Electoral College votes Wednesday afternoon, but the proceeding was interrupted at roughly 2 o’clock when a mob stormed the Capitol Building. After calm was restored, the count resumed six hours later at about 8 p.m. The violence, however, was not without terrible consequence as a woman was shot and killed by Capitol Police, and three other people died from medical emergencies.

Also yesterday, the second of the two runoff elections in Georgia was called with Democrat Jon Ossoff beating Republican Senator David Perdue after Democrat Raphael Warnock was announced victorious over Republican Senator Kelly Loeffler earlier on Tuesday. The margin of victory for both Ossoff and Warnock was razor thin, but more than the 0.5 percentage-point threshold needed to trigger a recount.

With the results in, Democrats have secured sweeping control of the White House and Congress, increasing the potential for the Biden administration to execute the economic policy platform promised along the campaign trail.

With a double victory in Georgia, Republicans have 50 Senate seats, while Democrats now also have 50 seats. Vice President-elect Kamala Harris now holds the tiebreaking vote, giving the Democratic Party unified control of the White House and Congress.

As we noted yesterday, the hope for many was a continued balance of power in Congress which would work to restrain fringe agendas, instead replacing a laundry list of campaign promises with ongoing gridlock, a seemingly positive outcome for the market as investors always prefer the status quo. Sweeping Democratic control, however, now increases the potential for the Biden administration to execute the economic policy platform promised along the campaign trail; with a Democratic sweep, the prospect of sizable and more controversial legislation increases including further stimulus as well as sizable support to states is increasingly possible. Tax hikes are also more likely, but not a sure thing as some Democratic senators with at-risk seats are likely to push against policies that stray too far from the center.

With the ink not yet dry on the fifth-round coronavirus relief package signed into law on December 27, the Biden administration has already indicated the potential for a sixth-round of aid. According to the incoming President, the latest coronavirus aid package was a "down payment" for dealing with the pandemic. Speaking at a news conference in Wilmington, Delaware on December 22, Biden suggested he supported further government aid including funds for testing and vaccinations, aid to cities and states and a third round of direct payments. A Democratic victory in Georgia now increases the probability of further spending becoming a reality. 

Investors, meanwhile, seem elated by the prospect of further government aid, rebuffing concerns over changes in taxes or regulation or longer-term consequences of rising debt and deficits.

Yesterday, equities surged more than 600 points at one point, closing with a gain of 437.80 points, or 1.4%.

Overnight, equities rose 0.3%. This morning, equities are up 0.9%, currently trading at 31,094.27 as of 10:17am ET.

While some argue further government support is warranted to help millions of workers and businesses still reeling from the pandemic and local policy measures aimed at stemming the spread of the virus, massive government spending will unquestionably lead to rising debts and deficits if unchecked, fueling fears of inflation and rising rates in the longer run. Debt to GDP is already at an alarming 98%, the highest since World War II and is projected to rise to 107% by 2023.

The bond market appears to be pricing in at least some concerns of a massive expansion of government spending with the ten-year pushing above 1% for the first time yesterday since March. Yesterday, the ten-year rose to 1.04%.

This morning, the ten-year is up 4bps, currently trading at 1.08% as of 10:10am ET.

On the local level, according to reports, facing a projected budget deficit of more than $8.7B, New York is planning to raise revenue by increasing taxes on higher income earners as well as legalizing marijuana and sports betting. New York was one of the hardest hit states with a caseload of more than 1M and death toll of 38,486. According to reports, the state has spent billions for expanded health services to combat the virus, yet remains in lockdown with a ban on indoor drinking and dining, a limit on gatherings to no more than 10 people, and some schools reverting to full-time remote learning.

Yesterday, ADP reported that private-sector employment unexpectedly dropped by 123k in December, marking the first monthly decline since April’s 19.4M drop. According to Bloomberg, private-sector employment was expected to rise 75k at the end of 2020.

Also yesterday, factory orders rose 1.0% in November, more than the 0.7% gain expected, according to Bloomberg, and following a 1.3% gain the month prior. Year-over-year, factory orders declined 0.4%, the ninth consecutive month of decline.

This morning, initial jobless claims unexpectedly declined by 3k from 790k to 787k in the week ending January 2, a five-week low. According to Bloomberg, jobless claims were expected to rise to 800k. The decline, however, as officials have reminded, could be due to reduced processing during the holidays as opposed to a new sustainable downward trajectory in claims.

A total of 73.8M applications for unemployment insurance have been filed over the past forty-two weeks due to the impact from the coronavirus.

Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, continued to decline from 5.198M to 5.072M over the past week.

Also this morning, the ISM Services Index unexpectedly rose from 56.6 to a reading of 57.2 in December, a three-month high. According to Bloomberg, the index was expected to decline to 54.5 at the end of 2020.

In the details, new orders rose from 57.2 to 58.5, supplier deliveries gained from 57.0 to 62.8, and exports rose from 50.4 to 57.3 in December, a six-month high. On the weaker side, prices paid decreased from 66.1 to 64.8, and backlog of orders declined two points to 48.7. Also, imports fell from 55.0 to 51.8, and employment decreased from 51.5 to 48.2, a four-month low.

Tomorrow, nonfarm payrolls are expected to rise a meager 50k in December, following a 245k gain in November, and potentially marking the weakest monthly pace since April. Additionally, the unemployment rate is expected to rise from 6.7% to 6.8%, and average hourly earnings are expected to increase 0.2% in December and 4.5% over the past 12 months.

-Lindsey Piegza, Ph.D., Chief Economist