US President-Elect Joe Biden speaks as he announces the economics and job team members on January 8, 2021 at his transition headquarters in Wilmington, Delaware, US.
Kevin Lemerke | Reuters
President-Elect Joe Biden’s inauguration next week is expected to usher in a more traditional and general presidential run, and the stock market may continue to climb, but perhaps at a slower pace.
Although strategists say the bull market is not over, it has already paid the price promised for the new stimulus spending expected from the Biden administration. The S&P 500 has risen 13% since the election, in part on the prospect of greater exacerbations, but also on the expectation that there will be an epidemic recovery after the vaccine.
Biden reveals a much-awaited spending plan when he speaks at 7:15 pm ET on Thursday evening. They are expected to outline their rescue packages for vaccination and provide support to families and communities affected by the epidemic.
“I think we’ve got the Biden incentive and it costs more,” said David Bianco, chief investment officer at DWS America. “The way I’m describing bidenomics is now spending, later taxing and not paying tax until bond market items. … Markets are now seeing things better and we’ll see if higher interest Returning to the road with. Rates. “
President Donald Trump saw himself as the champion of the stock market, claiming his performance as one of his achievements. He had a sizzling run in the market with 68% of the S&P 500 since inauguration, and more than 78% the day he was selected.
But it was an unstable growth. With the market set on Biden’s sights, the shares so far in 2021 have seen past political turmoil and remain calm. The S&P 500 has only two moves in 2021, which has changed to its lowest day ever. The S&P 500 is up about 1.6% on the year.
The S&P 500 had a compound annual growth rate of 13.2% from the day Trump was elected on Wednesday. Since World War II, it was second best only to Bill Clinton’s performance, which, according to the CFRA, saw an annual increase of 16.5% from the day he was elected until the end of his second term.
Since Trump’s inauguration day, the annual growth rate for the S&P 500 was 13.8% during his tenure, also for President Barack Obama. His performance is well behind Clinton’s growth rate of 15.2%, beginning with his inauguration day.
For the stock market, Trump’s pro-business policies have outpaced some of his actions that were negative for businesses, such as tariffs and the trade war with China. Tax reductions and deductions in all types of regulations increased stock gains.
Trump’s behavior has been largely ignored by the stock market. He frequently attacked his critics on Twitter, chasing companies and calling Fed Chairman Jerome Powell for not easing Fed policy for a while.
In his final week in office, he continued to unfairly challenge the legitimacy of the election he lost. His supporters attacked the Capitol last week, threatening the lives of Vice President Mike Pence and others while counting voter votes. Trump was impeached on Wednesday to incite the crowd, making him the first president to impeach twice.
In contrast, Biden is seen as a steady hand, with experience as vice president and in the Senate. They are expected to bridge differences between the parties rather than reduce the schism, and are likely to have more traditional views about US foreign policy and alliances. They are also expected to propose domestic policies to help reduce social division.
Then there is the pandemic, which caused the S&P to fall nearly 35% before Fed policy and financial spending spurred mass market share. This is the incentive-fuel market that a Biden inherited, and is anticipating an even greater expense and a resolution for the virus to spread quickly.
Following the Georgia runoff elections last week, Biden has a majority – albeit slim – to help push through his stimulus package in Congress.
Political strategists expect the plan to include incentive checks for individuals, assistance to states and local governments, expanded unemployment assistance and expenses associated with epidemics and vaccine rollouts.
The big question is how and when Democrats will find a way to pay for the increased spending. For now, the market is not worried about a possible increase in taxes that would undo Trump and the Republicans, some of the broader cuts made in their first year in office.
Because Democrats have a slim majority, they can use budget reconciliation to gain approval in the Senate, as it requires only a majority vote, not 60 votes requiring much legislation. . A plan will then be required to pay for the expenses.
Barry said, “I don’t think the market really thought about how this process was going to work. To push anything through them, they’re going to use cohesion, which means they have to pay for it. Have to do. ” Knapp is the managing partner of Ironsides Macroeconomics. “I think those tax increases have to be carried forward.”
Policy strategists are divided on when the tax hike will be introduced, but some say it could be for higher-income individuals and higher capital gains taxes this year. They expect the corporate tax rate to eventually be 21% to 25%, but it may come next year.
“The whole thing is probably a 10% price on the equity market,” Karrap said of the tax increase. “The overreaching force that is going to happen right now is the business cycle, and we’re still early in that recovery. … You still have an improvement in earnings. It’s a big tonic for the market. I won’t even get . Recession on it. It’s negative on the margin. “
Kannap said that a major driver would be global manufacturing and business improvement. “It’s not just an epidemic. They were depressed and prices were pushed down by the trade war,” he said.
Single digit profit?
The S&P 500 ended in 2020 with a gain of over 16%. Wall Street broadly expects to achieve single-digits for 2021. According to the CNBC survey of strategists, the average forecast for the S&P 500 is to be at 4,066 by the end of the year. But many strategists expect to see a stretch in the first half of the year, and Bianco said sales could exceed 10% in 2021. His year-end goal is 3,800.
CFRA chief investment strategist Sam Stowal said, “If it makes a general profit, it’s worse than in 2020.” On average, the stock market has grown by about 9% per year.
“It’s probably going to be boring because last year we had 109 days where S&P was up or down 1% a day, which is twice the average of 51, going back to World War II,” he said . “We finished 33 new all-time highs last year, while the average was back from 234 to 1954.”
Stowal is also expected to sell in the first half of the year. “Because it seems to be lagging behind in terms of growth and expansion of earnings, it may be another better year, which starts off slow.”
Stowall said the market had already paid a price in fiscal stimulus, at least equal to the previous $ 900 billion aid package.
“Maybe we take a pause in the first quarter. … There’s a lot of stuff that I think we’re overacted. P / E.” [price-to-earnings ratio] Stovall said 12-month earnings are 45% above their 20-year average, “the Russell 2000 is 37% above its 200-day moving average, the highest on record since the index in the 1970s.” “
Michael Aron, Chief Investment Strategist at State Street Global Advisors, said the market is already pricing too much of an economic recovery and the effects of financial and monetary stimulus.
“It doesn’t really beg the question of how it will be able to continue the momentum, especially in the second half of the year,” Aron said. “From my point of view a lot of forecasts are incredibly robby because the bar has been raised significantly and the property is pricing near perfection. We can cause some disappointment.”
Arone said that it doesn’t really matter for the market that is in the White House. It is the performance and earnings of the economy that drives stocks.
Biden has a few options. He may propose a package that includes payments for individuals, more unemployment assistance, funding for epidemics, and aid to states.
Aron said that instead of waiting, Biden can also add infrastructure spending to the package.
“That would have a price tag of over $ 2 trillion. That would indicate how confident Biden is, if he can accomplish it,” Aron said. “This would be a sign of how aggressive Biden is now that Georgia runoff is behind us and he feels he has control over both houses of Congress.”