• Edwick Haron

Biden Stocks Will Have History and Fed on Side, Not Much Else

First the good news for Joe Biden in the stock market. Going by history, buoyant markets tend to stay that way after a presidential election, at least for a while.

Data is positive for presidents-elect when it comes to momentum. Since 2000, every time the S&P 500 was higher heading into Election Day, November and December came in green, too. The first years of presidential terms have also been good ones of late. Since 1986, according to Leuthold Group data, they’ve seen average gains of 18.6%.

Equally reassuring, if you’re hoping for a Biden rally, is the steadfast presence of the Federal Reserve, which has been instrumental in preventing equities from collapsing and just reaffirmed it has no plans to turn off a money spigot that has been flowing all year. The possibility of a federal stimulus package for the economy also exists, though Democratic and Republican lawmakers reiterated opposing positions on Friday.

Now for the bad news. Standing against the cause of Biden in equity markets is a portfolio of trouble that has loomed for 10 months: the coronavirus and its attendant hardships, sky-high corporate valuations. Add to that political pressure to dismantle at least some of Donald Trump’s policies that helped keep markets aloft.

“It’s incrementally going to get tougher for Biden. He’s got bad fundamentals and expensive stocks. That’s a recipe for short-term disaster,” said Mike Bailey, director of research at FBB Capital Partners. “The stock market is going to be walking on eggshells waiting for Biden to drop the tax bomb at some point. It’s just going to be a very different type of dynamic.”

While a resurgent pandemic and high price-earnings multiples would create headaches for anyone regardless of party, it’s the more abstract issues that have given bulls pause when it comes to Biden. For months they’ve been struggling to figure out how seriously to take his frequent bashing of Trump’s equity obsession, which coincided with a 55% jump in the S&P 500 and the fourth-best return for a first-term president

Some of his utterances, while not exactly anti-market, have been ominous, if your worldview is dictated by equity prices. “Where I come from,” he said in the last debate, “people don’t live off of the stock market.” Criticizing Trump’s championing of the Dow Jones Industrial Average, he said: “That the stock market is booming is his only measure of what’s happening.”

While it’s possible to write off the talk as sloganeering, pressure exists within the Democratic party to translate it into action, particularly when it comes to tax policy. According to Kamala Harris, a Biden administration would on “day one” take aim at the 2017 Tax Cuts and Jobs Act, the Trump administration’s most explicit gift to investors.

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