Global equity markets are mostly higher this week after investors gave the Biden administration a warm welcome by bidding the S&P 500 and Nasdaq to new heights. Tech stocks led the charge, with old favorites like Netflix and Amazon posting gains. Intel also reported a nice set of results but sold off later during the conference call.
Just as Trump has set to change (or undo) the actions from the Obama era, Biden is likely to do the same to him. The policy of constant swings may have huge impact on society. Fortunately, it does not affect our magical stock market. No matter what the politicians throw at it, it just bounces off.
Since Biden was elected, the S&P 500 has traded up 14%. That’s the best performance between Election Day and Inauguration Day in history. With a new US president in the White house, what is next for the markets?
A look at Trump’s impact on the stock market
In my humble opinion, Trump will most likely be re-elected if there is no pandemic. Most of his actions can be seen as selfish and insensitive but I felt that it is meant to benefit the Americans more than the world, eg Trade war and the banning of Huawei and co. to protect USA’s technology prowess.
Before Trump came to power, we see companies like Apple hoarding billions of US Dollars overseas. The reason for not bringing home the cash is due to the high tax costs. Most of these companies have to issue bonds in order to manage their finances. With a swipe of Trump’s pen, tax costs have been drastically reduced, which led to these companies investing in the United States. In recent years, shareholders were able to enjoy capital gains and more dividends. This is largely due to Trump’s tax reduction policy that year.
Looking at Tesla, without Trump, Tesla’s Shanghai factory may not be completed in such a short time. Without the Chinese factory, Elon may not have an edge over their peers Xpeng and Nio.
Well… Goodbiden Mr. Trump.
What Would Biden Do?
President Biden is wasting no time dismantling Trump’s legacy. Especially when it comes to the environment.
On his first day in the White House, Biden took a series of executive actions that put an exclamation point on his commitment on issues related to the public health, economic relief, climate change, racial equity and immigration. The highlights:
- COVID-19: Require masks and physical distancing on federal property and create the position of COVID-19 Response Coordinator. He also plans to re-engage with the World Health Organization (WHO).
- Economic Relief: He is asking federal agencies to consider extending the federal eviction and foreclosure moratoriums until at least March 31, 2021. He also wants the Department of Education to extend the pause on interest and principal payments for direct federal student loans until at least September 30, 2021.
- Climate change: To begin the process to rejoin the Paris Agreement immediately. He will also sign an executive order that will begin the rolling back of several of President Trump’s actions, including revoking the Presidential permit granted to the Keystone XL pipeline.
You can have a look at his strategy in the link below.
Stimulus
For the second time of his life, Biden is stepping into the White House in times of turmoil. As he had learnt of his past back in 2009, the actions taken then were not aggressive enough to fight the recession. This led to a weaker economic recovery.
This is also why he is proposing a huge $1.9 trillion stimulus plan to avoid repeating the mistakes of the Great Recession.
Such a massive spending plan is bound to face opposition in Congress. Deficit hawks are reluctant to add to America’s $27 trillion pile of debt.
But on the other hand, Biden’s Treasury secretary nominee, Janet Yellen advocated big spending during her confirmation hearing. She opined that the immediate need for stimulus far outweighs the debt risks. This is because of the current rock-bottom interest rates.
So What’s Next?
In coming days, we should closely monitor the implications of Biden’s leadership on U.S. foreign policy and the stance toward China and the key oil producers Iran and Venezuela.
On the coronavirus front, the number of COVID cases continues to accelerate in the US but Joe Biden and his team have already started working on tackling the ongoing crisis in the country.
On the other part, we need to see how the Biden government is going to handle the vaccine distribution especially reaching rural populations and those without regular access to health care will be difficult.
While a strong argument can be made to support this stimulus to avoid the economy from slipping into another recession, because of the deficit and the total debt, the amount of the package should be carefully examined.
But most will agree that the stimulus is needed, unless the economy completely reopens quickly. Stimulus will help the economy in the short term to avoid another recession.
There is no guarantee that the stock market will soar with President Biden. In part because, unlike when Barack Obama was elected, the stock market has already recovered to its pre-recession levels. The 2020 stock market crashes was one of the fastest drops and recoveries in history.
One thing certain; we are in bubble territory and I feel that most stocks are expensive. Unless the economy picks up, we could go through another period of huge volatility in the markets.
Cheers