The current growth of Biden Market is the second time in a row that Wall Street has cheered a new president: shares won more than 6% in the inaugural election after Donald Trump defeated Hillary Clinton in 2016. gained 5% during Trump’s first 100 days as well.
But there is a major difference: Trump inherited an economy that was growing at a steady rate during the long, post-Great Recession recovery. Biden enters the Covid-19 economy.
Stimulus expectations, combined with Americans beginning to receive coronavirus vaccinations, have fueled hopes that the economy – and corporate earnings – will improve by the end of this year.
Oil, banks and small-cap stocks gained more momentum
To this end, the energy and financial sectors have been the best performers since the elections. Oil companies should benefit from an improved economy and rising oil prices, while banks often do better when there is increased demand for loans.
Small-cap stocks also outperformed the S&P 500, a move that makes sense given that smaller companies have a higher exposure to the US economy compared to large multinationals dominating the Dow and S&P 500.
Biden’s rise is also in stark contrast to how actions have evolved in the previous two situations in which a new president came to power in the tumultuous economic times.
The S&P 500 fell more than 6 percent in late 2000 and early 2001 after George W. Bush defeated Al Gore. The elections were also contested, adding to the uncertainty that was already present in the market as a result of the dot-com bubble explosion in early 2000.
And stocks fell nearly 20 percent from November 2008 to mid-January 2009 after Biden’s former boss Barack Obama defeated the late John McCain. Investors were still extremely nervous about the collapse of Lehman Brothers and the eruption of bank failures at the time.
But experts say investors need to realize that the performance of the market between the election and the inauguration is not necessarily a harbinger of things to come for the rest of the year.
CFRA Research chief investment strategist Sam Stovall said in the report that “the S&P 500 is waiting for a earnings digest that could push the value of the index below its 2020 closing level.”
In other words, the rest of the year could be injured. But any recession could be short-lived: Stovall also predicted that any market withdrawal in 2021 will be “set early enough in the year to allow time to recover all losses and set even higher highs.”