Biden’s post-election stock market growth easily beats Trump’s

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The S&P 500 has risen 10% since election day to all-time highs. This almost doubles the 5.5% rally in the same post-election period in 2016.
Nasdaq, high stock of flying technology, including Amazon (AMZN) and zoom (ZM), has grown by an astonishing 15% since November 3rd. That almost triples the post-election growth of the Nasdaq by 5% four years ago.
These are impressive returns, especially given that Trump has repeatedly warned that stocks will “collapse” if the Americans fail to re-elect him. That has not been the case, at least so far.

Even if President-elect Joe Biden may have (very) early praise, Wall Street’s post-election celebration is not just about – or even primarily – Biden’s victory. Instead, the gains are driven by a sense of relief that the nightmare election scenarios have been avoided and, most importantly, that vaccines will hopefully help end the pandemic.

“Certainly, there were many concerns before the election that they could lead to social and political unrest,” said Ed Yardeni, president of investment consulting firm Yardeni Research. “There were no riots in the streets. The market focused on the fact that the constitutional system continues to function.”

Goldilocks for stocks

Investors are also relieved that neither side will be free to impose radical new policies in 2021. The “blue wave” has not materialized and Republicans have unexpectedly won seats in the House of Representatives.

Unless the Democrats sweep both January rounds in Georgia, the GOP will retain control of the Senate. Even if the Democrats win those races in Georgia, they will hardly have a supermajority, although, with a 50/50 split, elected Vice President Kamala Harris would vote decisively to break any deadlock.

“All of this suggests that more extreme ideas, left or right, will not become law. That is celebrated,” said Michael Arone, chief investment strategist at State Street Global Advisors.

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For example, Democrats will be hit hard by a sharp rise in corporate or wealthy taxes. It is very likely that Biden’s general legislation will be blocked by Republicans. Only the infrastructure has a chance to go through the blockage.

Trump beat Biden during the “Sleepy Joe” campaign, but many investors wouldn’t mind breaking away from the chaos and unpredictability of the Trump era. The latest example came on Tuesday night, when Trump shocked even his allies, threatening to block the $ 900 billion bipartisan aid package.

“For investors, this is somewhat the best of both worlds,” Arone said of the election result. “Get a more predictable foreign and trade policy, while your domestic policy does not seem as progressive as some of the worst fears.”

Rescue vaccines

The post-election rally began in earnest Pfizer (FE) and BioNTech (BNTX) announced on November 9 that their vaccine is extremely effective against Covid-19. Modern (mRNA) followed the example with a similar announcement a week later. Both vaccines have since received emergency use authorization from the FDA.

“It gave investors confidence that there was a light at the end of the tunnel,” Arone said.

That’s why Wall Street has largely looked at Covid-19 cases, hospitalizations and deaths.

Not all markets outperform post-election performance in 2016. For example, the Dow’s 10% jump on Election Day is just before the 9% gain in the same period in 2016.

The Fed factor

Of course, the economic world is very different today than it was four years ago.

At the time, the recovery from the Great Recession was showing signs of old age. Investors believe that this recovery is just beginning – and they do not want to miss out on market gains (especially if they did it last time).

“The central question in 2016 was: How do you maintain recovery?” said Nicholas Colas, co-founder of DataTrek Research. “The question now is what kind of recovery there will be after the worst recession since the Great Depression.”

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And unlike 2016, the Federal Reserve doesn’t want to raise basement interest rates anytime soon. In June, Fed Chairman Jerome Powell said, “We don’t even think about raising rates.”
More recently, the Fed has promised to keep its footing on the stimulus pedal. At its December meeting, the central bank pledged to continue buying bonds “at least” at the same pace until further progress is made in repairing the economy.

This light-hearted Fed policy context forces investors to bet on equities. And it is much more important for investors than politics.

“Anyone at the Resolute office doesn’t matter to the markets,” Colas said. “What matters is politics.”

Fears of melting

The bigger question now is whether this rally has gotten out of hand.

Not only are stocks expanding, but the IPO market is also on fire, as evidenced by the monstrous debuts of DoorDash and Airbnb. Investors invest money in empty check companies known as SPACs. And the M&A market is gaining steam.

“There are a few red flags that suggest the market is a bit overheated,” Arone said of State Street. “It wouldn’t surprise me if you saw a 5% to 10% correction in the first quarter. It would be healthy.”

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Yardeni also hopes the market will cool.

“A correction would be a good way to keep the bull market on track, without a major crisis,” Yardeni said. “Melts, by definition and experience, are followed by melts. They’re fun on the way up and painful on the way down.”

In other words, the biggest concern on Wall Street at this stage of the pandemic is that things could go too well.

Instead, Main Street is just trying to get through – and hoping Washington will come to the rescue with more help.

It is another reminder of America’s K-shaped recovery and the unexpected injustice of economic life in 2020.

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