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Here’s what’s at stake for markets in the Georgia Senate runoff elections

  • The stock market could take an initial hit if Democrats pull off a surprise victory in Georgia's runoff election.
  • But market strategists expect the market could then respond to the prospect of more stimulus spending by Democrats, and that would cause a sell-off in bonds and drive a rotation into cyclical and value stocks.

Voters line up early in the morning to cast their ballots in the U.S. Senate run-off election, at a polling station in Marietta, Georgia, U.S., January 5, 2021.Mike Segar | Reuters

If Georgia voters surprise the market by electing two Democratic senators in Tuesday's runoff election, bond yields could immediately go higher and stocks could sell off.

The stock market, however, could seesaw as investors weigh the risk of tax increases against the prospect for more government spending to boost the economy. Some strategists say it may not prove negative for the market for long and there could be another big rotation toward the stocks that would do well with more fiscal stimulus and infrastructure spending.

"I'm kind of negative on it if it turns totally Democrat. I think the market has a bad reaction to that initially," said James Paulsen, chief investment strategist at Leuthold Group. "I don't think it's going to end the bull. … Eventually, we're going to get a catalyst to create a correction anyway, and that could be it. There's a lot of people out there that think it's a positive because it could bring more fiscal juice."

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