• Ten-year Treasury yield tops 1% for first time since March
• Rotation trade is back in play as small-caps surge, tech drops

(Bloomberg) — 

Democrat Raphael Warnock ousted Republican Kelly Loeffler in a runoff race, leaving control of the Senate hinging on the state’s other election, which remains too close to call. If the party prevails, analysts say it could usher in more stimulus spending to drive economic growth and inflation, but also lead to tougher antitrust scrutiny of the technology giants.

Cyclical assets posted strong gains on Wednesday, with futures on the Russell 2000 Index of small-cap stocks rallying more than 2.5%. Energy stocks and banks lifted equity benchmarks in Europe.

In contrast, technology companies suffered. Apple Inc., Microsoft Corp., Intel Corp. and Cisco Systems Inc. fell more than 2% in U.S. pre-market trading. Nasdaq 100 Index futures sank 1.5% and contracts on the S&P 500 slipped 0.3%.

”The market is pulling in implications of what a Democrat win would mean for the economic recovery,” said Peter Rosenstreich, head of market strategy at Swissquote Bank. “Expected increase in fiscal stimulus and infrastructure spending would bode well for cyclical or growth stocks. Tech stocks may not benefit as much, and that may have something to do with their stretched valuations.”

The outcome of the Georgia races could have major implications for a number of financial markets and there’s no shortage of guesses as to how it could play out.

In Treasuries, if lawmakers approved additional stimulus spending, it would mean more bond issuance and higher yields on longer-maturity Treasuries. Traders now see U.S. inflation averaging just over 2% per year over the coming decade, the highest level since 2018.

But for the stock market, there’s a risk that a unified, Democrat-controlled Congress would portend higher corporate taxes and more regulation. Technology companies dominate U.S. benchmarks, giving the industry an outsized importance.

“What looks like good news for the U.S. economy is probabl