Happy New Year and welcome back to thoughts on the market. I'm Michael Zezes and this year we're excited to bring you insights from even more of our team at Morgan Stanley five days a week. We hope you enjoy the new voices, new music, and same great

market takeaways you've come to expect. It's Thursday January 7th at 10 a.m. in

New York. With the news networks having called both Georgia Senate races for the

Democrats,

the party appears poised to add control of the Senate to their control of the

presidency and the House of Representatives.

This is a key development for markets as it shifts Congress from a gridlock formation to one more consequential legislation has become possible.

In particular, we now think the U.S. economy, already tracking a sharp recovery,

is poised to receive yet another boost of fiscal support from Congress.

Democrats have clearly expressed a desire to go beyond the $900 billion stimulus bill passed last month,

most notably shown by their $3 trillion Heroes Act bill.

With control of Congress and the White House they now have the

opportunity to execute. So we expect they'll act fairly quickly to add about another

one trillion dollars to last month stimulus with allocations that were left out of that

package such as aid to state and local

governments.

But what about Democrats' plan for higher taxes?

Doesn't that cut against any support that might come from spending?

It could, but we think these questions will largely remain hypothetical.

That's because in the Senate where Democrats have the slimmest majority possible,

any one Democratic senator effectively has a veto.

And when it comes to taxes, we expect many of the Biden administration's proposed taxes won't pass muster with Democratic moderates.

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