A disputed election that could devolve into a full-blown constitutional crisis. A COVID third wave. A stimulus rescue package that bogs down in Washington.

As the calendar flipped to October, the start of the final quarter of 2020, these clouds hung thick and dark over the markets. Veteran investors could be excused for wanting to take the fourth quarter off, a common strategy in a presidential election year.

But something unusual happened. In keeping with this completely unpredictable year, the markets rallied, with the Nasdaq and S&P 500 both climbing 2.2% in the first week of October, enough to just about recoup all of September's losses.

What gives?

You can call it an October surprise that came early, and one that may have a enduring impact for the next four years, and beyond.

President Trump’s positive COVID-19 diagnosis may have thrown his re-election bid into turmoil, but it has had the opposite effect on the markets. From that point on, Joe Biden’s lead in the polls and election odds solidified, and Wall Street and investors started to come to grips with how their portfolios would perform with, gasp, a Democrat in the White House, and a blue sweep overtaking Congress.

“The odds of a Biden victory continue to rise, as do the chances of a blue sweep," Ian Lyngen, a BMO Capital Markets bond analyst, wrote last week in an investors note. "And if the recent bid for risk assets is any guide, such an eventuality could prove a decidedly positive event for domestic equities.”

Ordinarily, Wall Street hates one-party control. And, if anything, it usually prefers a low-tax, regulation-busting Republican in the Oval Office. That anxiety runs deep, even if the historical data doesn't quite back up the paranoia.

But this year, the script has flipped. Wall Street is not only unperturbed by the prospect of Washington awash in blue come January, it sees a possible upside.

Spending and taxes

Yes, a Biden presidency would likely mean a tax hike at some point after 2021, but, all in all, the pros outweigh the cons, a growing chorus of Wall Street analysts say.

"A blue wave would likely prompt us to upgrade our forecasts," Goldman's chief economist, Jan Hatzius, told investors last week. "The reason is that it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the likely longer-term tax increases on corporations and upper-income earners."

Jeff Buchbinder echoes that fear-not message. Buchbinder, vice president and market strategist at LPL Financial Research, sees the addition of a big fat stimulus spending package from a Biden-led White House plus the removal of the Trump era trade wars as two tailwinds for Corporate America that could just about offset the negative hit brought on from a Democrat-led tax rate hike. The best scenario for corporate earnings would be a return to free trade and no new taxes, as LPL's calculation here shows.

Still, Buchbinder figures the 10% hit (Goldman calculates it at an 9% hit) to corporate earnings that you'd see from a Biden tax hike matches the EPS boost you'd get from removing tariffs from America's top trading partners in China and Europe.

And, it should be noted, the consensus is that a Biden tax hike would be watered down before it gets signed into law. "Not a single President in American history has had a tax plan in their campaign that then got photocopied and became a tax law. Ever,” David Bahnsen, founder and managing partner of the Bahnsen Group, tells Fortune.

Even still, it's time to look at which sectors would be most exposed to Biden's tax proposal. As is is the case with any new tax plan, there will be winners and losers.

According to Goldman Sachs, the following sectors—information technology, health care, communications services and consumer discretionary—could see the biggest EPS hits from a tax rate hike in the years to come. Energy and financials would be less exposed, as the following Goldman chart shows:

The almighty dollar

There's a third factor that could add rocket fuel to a stocks rally: the dollar. The FX markets are highly sensitive to shifts in foreign policy, and to changes at the top.

"A 'blue wave' scenario—where former Vice President Biden wins the presidency and Democrats also take the Senate—should accelerate US Dollar weakness, in our view," Goldman Sachs FX analysts wrote in its latest "Election Playbook" report to investors. They see increased government spending, higher corporate taxes and a return to freer global trade as three factors that could weigh on the greenback.

And a weak dollar is a big stimulus for corporate earnings as it makes exports cheaper and gives American multinationals a competitive edge in global trade.

"We are holding off on recommending new Dollar shorts for now as we await more information on how the President’s health situation will affect the race," the Goldman analysts wrote. "But we view current levels as relatively attractive to express our positive cyclical views—especially if polling continues to indicate a sizable lead for Biden."

Surprise!

On Sept. 2, the S&P 500 slumped to 3,281.06, putting it within a few fractions of a percent of break-even for 2020. After the markets closed that day, my in-box filled up with all kinds of historical analyses how, every four years, Wall Street typically performs poorly in the two months prior to a presidential election. The message was clear: history says to move into cash, and wait it out until America elects a president.

As it stands now, that would have been an extraordinarily bad move. The S&P 500 is up 6.5% since then (as of the Oct. 8 close), and market volatility, as measured by the VIX index, is flashing a green light.

But, dear reader, this is still October. There's no rule saying only one October surprise per election cycle. Anything can still happen between now and Election Day.

"We must now run 'what-if' scenarios toward the U.S. presidential race," James McDonald is CEO of Hercules Investments, told Fortune. "My biggest 'what-if' is if Joe Biden contracts COVID-19, too."