Biden’s post-election coup easily surpasses Trump’s

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The S&P 500 has risen 10% from election day to record highs. This almost doubles the concentration of 5.5% during the same post-election period of 2016.
The Nasdaq, elevated by high-flying technology stocks included Amazon (AMZN) i Zoom (ZM), has risen an impressive 15% since November 3rd. That nearly triples the 5% on the Nasdaq after the election four years ago.
These are impressive returns, especially considering that Trump repeatedly warned that stocks would “fall” if Americans failed to re-elect him. It has hardly been so, at least so far.

While President-elect Joe Biden might have some (very) early boasting rights, the Wall Street post-election celebration is not just, or even primarily, about Biden’s victory. Instead, the gains are explained both by the sense of relief from the avoidance of nightmare electoral scenarios and, perhaps most importantly, that vaccines help, hopefully, end the pandemic.

“Certainly, before the election there were many concerns that could lead to social and political unrest,” said Ed Yardeni, president of investment consultancy Yardeni Research. “There have been no riots on the streets. The market has focused on the fact that the constitutional system is still working.”

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Investors are also relieved that no party has the free reign to impose 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 schools in January in Georgia, the Republican Party will retain control of the Senate. Even if the Democrats win these Georgia races, they will hardly have a majority surface, though with a 50/50 split, Vice President-elect Kamala Harris would cast the casting vote to break any blockade.

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

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For example, Democrats will have little effort to raise taxes on businesses or the rich. Republicans are very likely to block Biden’s extensive climate legislation. Only the infrastructure has the possibility to break the blockage.

Trump criticized Biden during the campaign as “Sleepy Joe,” but many investors wouldn’t mind breaking the chaos and unpredictability of the Trump era. The latest example came Tuesday night when Trump surprised even his allies by threatening to block the $ 900 billion bipartisan relief package.

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

Vaccines to the rescue

The post-election rally was launched later Pfizer (PFE) i BioNTech (BNTX) announced on November 9 that his vaccine is very effective against Covid-19. Modern (MRNA) followed suit with a similar announcement a week later. Both vaccines have since received FDA emergency use authorization.

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

That’s why Wall Street has largely seen cases of Covid-19, hospitalizations, and shooting deaths.

Not all markets surpass their 2016 post-election performance. For example, the Dow’s 10% jump from election day is only below its 9% gain over the same period in 2016.

The Fed factor

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

At the time, the recovery from the Great Recession showed signs of old age. Investors believe that this recovery is just beginning and do not want to lose market gains (especially if they did it last time).

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

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And, unlike 2016, the Federal Reserve has no desire to raise basement interest rates soon. In June, Fed Chairman Jerome Powell said, “We don’t even think about thinking about raising rates.”
More recently, the Fed promised to keep its foot on the stimulus pedal. At the December meeting, the central bank pledged to continue buying bonds “at least” at the same rate until further progress is made in repairing the economy.

This context of easy Fed policy basically forces investors to bet on stocks. And it is much more important to investors than politics.

“Whoever sits at the Resolute counter doesn’t matter in the markets,” Colas said. “The important thing is politics.”

Fears of fusion

The biggest question now is whether this rally has gotten out of hand.

Not only are stocks booming, but the IPO market is also hot, as evidenced by the monstrous debuts of DoorDash and Airbnb. Investors are engaged in money in blank check companies known as SPAC. And the mergers and acquisitions market is gaining momentum.

“There are some red flags that suggest the market is a little overheated,” Arone of State Street said. “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 bullish market on track without a major drop,” Yardeni said. “Mergers, by definition and experience, are followed by defeats. They are fun on the uphill and painful on the downhill.”

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

By contrast, Main Street is struggling just to get it and hopes Washington will come to the rescue with more help.

It’s one more reminder of the K-shaped American recovery and the stark injustice of economic life in 2020.

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