Reverend Rafael Warnock and Jon Ossoff defied expectations by both winning their Senate runoff races in Georgia. The result was a surprise to most forecasters especially as both had margins above 1%. Typically, Democrats underperform in special elections.
Additionally, both incumbents - Purdue and Loeffler - fell short of the 50% criteria to win their races in November, yet they led their opponents in these races despite President-elect Biden winning the state by a margin of 11,000 votes.
Reasons for Democrats Winning
However, the race was unusual and remarkable for a couple of reasons and these factors seem to account for the outcome. First, the November result indicated that President Donald Trump was less popular than the incumbent Senators as they outperformed his total. However, these Senators both had to cling to President Trump in order to ensure that his base showed up at the polls.
Of course, this was complicated by the fact that President Trump was more focused on allegations of election fraud and attacking Republican officials in Georgia. It's likely that some Republicans who supported Purdue and Loeffler in November but voted for Biden were turned off by this. Additionally, this took away their most potent argument that their victories were crucial to keeping control of the Senate and serving as a check on Democrats.
Some other factors include Senate Republicans blocking the $2,000 stimulus checks which were supported by President Trump and a majority of Republicans. This allowed Ossoff and Warnock to campaign on this issue. Another potential reason to account for the shift in the vote was that coronavirus case counts have re-accelerated in Georgia since the election which highlighted Loeffler and Purdue's handling of it and the contrast between their stock trading and public statements.
While these unusual factors are behind marginal shifts in the vote, the bigger issue is that we are seeing a transformation in the electorate. Working-class voters among all racial groups are moving Republican, while college-educated voters are moving towards the Democratic Party. This shift was happening before Trump, however, it has accelerated under him. As a result, it's likely that states like North Carolina, Georgia, and Texas could eventually become solid blue states, while "Rust Belt" states like Pennsylvania, Wisconsin, Minnesota, and Michigan could go red. Georgia has an unusually, high-combination of suburban and college-educated voters, and this group has shifted massively towards Democrats sine 2016.
Stock Market Impact
Markets surged higher following the result, as it means that more fiscal stimulus is coming. Particularly, stocks connected to infrastructure and green energy were the strongest performers. A Senate Republican would likely block and water down these bills. If Majority Leader Mitch McConnell continued the same type of obstruction as he did during the Obama Administration, many of Biden's Cabinet picks and judicial nominees might not even receive floor votes. So, the Georgia results averted this outcome.
However, in the long-term, there could be some less market-friendly outcomes. For example, Democrats might look to reverse the Trump tax cuts which could raise corporate taxes. This could lead to a double-blow for tech companies. They have the most profits, so they would be most affected. Further, higher interest rates (due to increased deficits) would likely lead to lower multiples which would also damage their prospects.