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Markets will see ‘a lot of volatility’ with no election results: Strategist

Stocks are rallying as voters flock to the polls on election day. AGF Chief Strategist Greg Valliere joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: Greg Valliere, AGF chief strategist, he joins us now. And Greg, appreciate you joining us to discuss all that. We just heard from Frank. I mean, when you look at it here, you're still saying that you see a light blue wave, not necessarily a tidal blue wave here.

Talk to me about how important that question is here when we think about where investors should be positioned now. And I think you might need to unmute real quick before we can hear you, Greg. But as soon as you do that, we'll be able to connect.

GREG VALLIERE: There we go. There we go. So isn't it ironic, Zack, that Wall Street is having a huge rally today? Donald Trump has said for months and months that he is the candidate of strong markets. But actually, Wall Street fundraising for Biden was extraordinary. Biden raised far more money on Wall Street than Donald Trump has.

So I think the markets can live with this story. I think they liked the idea of a really big stimulus bill early next year. What leaves me a little sort of doubtful is that as we get into the second half of next year, we're going to be talking about a lot of tax increases. I'm not sure the markets are going to like that.

AKIKO FUJITA: Greg, let's talk about where we are seeing the market today. I mean, to your point, up in a big way, building on gains we saw from yesterday, yes, the context is that we're coming off of the worst month since March. But what do you think is driving these gains? And is there anything we can parse from this in terms of investor sentiment going into the results tonight?

GREG VALLIERE: Well, I think, Akiko, first and foremost, the markets would like some certainty. They would like some predictability. It's a cliche that markets hate uncertainty, but it's a true cliche. And I think that at least we're getting close to some kind of resolution.

If this looked like a tidal wave, with the Democrats winning six, seven seats in the Senate, the Democrats won 30 or 40 seats in the House, then I think the markets would be worried that the progressives could really take over. But a result like this, a light blue wave, again, I think the markets can live with.

ZACK GUZMAN: In terms of what the markets can live with, you talk about uncertainty there. We had a guest on from Jefferies yesterday talking about expectations. In their latest survey, they had a 23% of investors expecting to know results by tonight, 40% expecting to wait until Friday.

You put that together, the majority are bracing for results and knowing who won this race by the end of the week. And I'm not sure we're going to get there. So if we don't and that question still remains moving into next week, what kind of volatility do you see here in terms of pressure on the overall market?

GREG VALLIERE: A lot. I think there'd be a lot of volatility if we go into next week not knowing who won, or, even more ominously, if Donald Trump declares in the next day or two that he won, that he was cheated. He kept saying all summer that the election was rigged.

If he starts saying the election is rigged and he starts talking about litigation, well, that could last for a while. I point out to everybody, Zack, that in the year 2000, it took the Supreme Court until December 12th to decide that George W. Bush beat Al Gore. I mean, this could take a while.

AKIKO FUJITA: I mean, a lot of investors certainly hope it's not another repeat of 2000. But, you know, we're talking about the presidential election. Clearly, there are other elections that are happening today. And this big question about whether, in fact, there's going to be a blue wave, you point out that it's going to be a light blue wave.

And even if Joe Biden does win, you don't think it's going to be an overwhelming victory. And so that sets up the potential of more gridlock in Washington. We had a guest on yesterday who said he doesn't think that's necessarily a bad thing for markets. How do you view that?

GREG VALLIERE: I would agree. I do think the Democrats can get some things done. But when it comes to really radical change like packing the Supreme Court or changing the filibuster rules, the Democrats are going to need more members.

I mean, right now, there's at least a couple of Democrats in the Senate who are moderate. We might get another one or two tonight. So it's not enough for the Democrats to take the Senate in a 50-50 tie. I think if they want to get really progressive legislation passed, they would need to have the Senate by 53 to 47, something like that, which I think is unlikely.

ZACK GUZMAN: Greg, last question to you. I mean, having covered all that, when we look at kind of sectors who had enjoyed a bit of a rally here leading up to the election, utilities rose the most in the month of October, up 5%.

You could raise the question whether that's a flight to safety or whether or not people are now starting to buy into the idea that Biden's proposals, particularly on solar, might be catching a boost here. So where are you telling people to maybe be focusing in on, on a sector by sector look or maybe some new theses around what could gain?

GREG VALLIERE: Yeah, really quickly, Zack, I think fossil fuels, oil, coal, gas are not going to be doing well. I think maybe the biggest play is the defense sector. After three or four years of really impressive spending increases, I think we level off if Biden wins. I think the spending increases for defense could be over.