Biden’s post-election stock market collapse is easily outpacing Trump’s

The S&P 500 has risen 10% since election day to record highs. This almost doubles the 5.5% increase during the same post-election period in 2016.
Nasdaq, driven by high-tech stocks, including Amazon (AMZN) and Enlargement (ZM), is an impressive 15% increase since November 3rd. This almost triples the Nasdaq post-election jump of 5% from four years ago.
These are impressive returns, especially considering that Trump has repeatedly warned that the stock would “break” if the Americans did not re-elect him. This has hardly been the case, at least until now.

Even though President-elect Joe Biden may have (much) the right to boast from an early age, the post-election celebration of Wall Street is not just – or even primarily – about Biden’s victory. Instead, gains are being driven by a sense of relief because nightmare election scenarios have been averted and, perhaps most importantly, that vaccines will help end the pandemic.

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

Goldilocks for stocks

Investors are also relieved that neither party will have a free rein to impose comprehensive new policies in 2021. The “blue wave” did not materialize and Republicans unexpectedly won seats in the House of Representatives.

Unless Democrats sweep the two January qualifiers in Georgia, the Republican Party will retain control of the Senate. Even if Democrats win these contests in Georgia, they are unlikely to have a super majority, although with a 50/50 split, Vice President-elect Kamala Harris would give the decisive vote to break any impasse.

“All of this suggests that the most radical ideas, left or right, will not become law. This is being celebrated,” said Michael Arone, chief investment strategist at State Street Global Advisors.

For example, Democrats will have little chance of dramatically raising taxes on business or the wealthy. It is very likely that Biden’s comprehensive climate legislation will be blocked by Republicans. Only infrastructure has a chance to overcome the impasse.

Trump criticized Biden during the campaign as “Sleepy Joe”, but many investors would not mind interrupting the chaos and unpredictability of the Trump era. The most recent example came on Tuesday night, when Trump shocked even his allies by threatening to block the $ 900 billion bipartisan package.

“For investors, this is the best of both worlds,” said Arone of the election result. “You get a more predictable foreign and trade policy, while your domestic policy doesn’t seem as progressive as some of the worst fears.”

Rescue vaccines

The post-election rally went into high gear after Pfizer (PFE) and BioNTech (BNTX) announced on November 9 that their vaccine is highly effective against Covid-19. Modern (MRNA) followed suit with a similar announcement a week later. Since then, both vaccines have received FDA emergency use authorization.

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

That’s why Wall Street has largely looked beyond the Covid-19 cases, hospitalizations and deaths that have soared.

Not all markets are outperforming 2016’s post-election performance. For example, the Dow’s 10% jump since election day is only slightly ahead of its 9% gain during the same period in 2016.

The Fed factor

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

At that time, the recovery from the Great Recession was showing signs of aging. Investors believe that this recovery is just beginning – and they don’t want to lose market gains (especially if they lost it last time).

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

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And unlike 2016, the Federal Reserve is not looking forward to taking interest rates out of the basement anytime soon. In June, Fed Chairman Jerome Powell said, “We are not even thinking about raising rates.”
More recently, the Fed promised to keep its foot on the stimulus pedal. At its December meeting, the central bank promised to continue buying bonds “at least” at the same pace until further progress is made in the recovery of the economy.

This easy Fed policy scenario is essentially forcing investors to bet on stocks. And it is much more important to investors than politics.

“Whoever is sitting at the Resolute Desk does not matter to the markets,” said Colas. “What matters is politics.”

Melted fears

The big question now is whether this rally got out of hand.

Not only are stocks bullish, but the IPO market is also bullish, as evidenced by the monstrous debuts of DoorDash and Airbnb. Investors are investing in blank check companies known as SPACs. And the M&A market is gaining momentum.

“There are some red flags that suggest the market is a little overheated,” said State Street’s Arone. “I wouldn’t be surprised if you saw a 5% to 10% correction in the first quarter. That would be healthy.”

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Yardeni also expects the market to cool.

“A correction would be a good way to keep the market going without a major collapse,” said Yardeni. “Melts, by definition and experience, are followed by breakdowns. They are fun to climb and painful to descend.”

In other words, Wall Street’s biggest concern at this stage of the pandemic is that things may be going a little too well.

Main Street, on the other hand, is struggling to survive – and expects Washington to come to its aid with more help.

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