Stock markets around the world rallied after the declaration that Joe Biden had won the US election last November. Now, many are wondering if the upcoming inauguration of Biden could have the same effect on stock markets.
How have markets usually reacted to new US presidents?
For the most part, markets have generally reacted positively to the inauguration of new US presidents. In four of the last six presidential changes, the S&P 500 (a stock market index representing some of the biggest and best companies in the US) has registered gains during the period between Election Day and inauguration.
The index has also registered gains in the first 100 days of eight of the last ten presidential terms. Needless to say, this might not be entirely due to the inauguration as there are many factors that can affect the market.
What is different about Biden’s inauguration?
A change of power in the highest office of the land is always a sensitive matter, and more so when there’s a new political party taking over.
A new administration means new policies that are bound to have an effect on different sectors of the economy. Not to mention that this time around, there are the added complications of a global pandemic.
But even with all this, there are reasons for investors to be confident about Biden’s inauguration.
Matthew Leibowitz, CEO of digital brokerage platform Stake, seems to share this view, stating that:
“Obviously, there are always a multitude of external factors involved, especially during this strange period we are currently in, but if you compare market behaviour in this presidential transition to the six before it – going right back to Reagan’s first term in office back in 1981, then the Biden Bounce appears to be in full swing. Since election day in November the S&P 500 is up by about 12.6% and still increasing – more than the previous six transition periods and around double the increase we saw in the build up to Trump’s inauguration four years ago.”
Why could the markets go up after Biden’s inauguration?
First, the inauguration will bring stability and possibly end a period of uncertainty after a highly contested election. This will increase investors’ confidence about the economy’s future prospects and could see the markets rise.
Investors also seem to be quite hopeful about Biden’s new policies. This could set the market up for a nice little bull run. For example:
- Biden is expected to push for a fiscal stimulus. The Federal Reserve is also likely to continue giving major support to markets at the beginning of the new presidency. Both could drive investor confidence up.
- Biden looks set to adopt a new multilateral approach when it comes to foreign trade policy. This could mean improved trade relations with other countries.
- On Covid-19, Biden appears to favour a more hands-on approach to dealing with the virus. Some say that he’s been more forthcoming about measures he plans to put in place in his first days as president. His plans include:
- speedier delivery of the vaccine
- a more detailed and safer road-map to schools’ reopening
- asking all Americans to wear face coverings for the first 100 days of his term to halt the virus’ spread
Would now be a good time to invest?
There are a lot of reasons to be optimistic about the stock markets after Biden’s inauguration. But savvy investors know better than to base their investment strategy on trending headlines or events.
Pay too much attention to these and you’ll miss the big picture – which is that over a long-term horizon, the stock market has an upward bias. And some things, like a change of president, don’t really matter very much.
So, rather than trying to time the market, which involves a lot of guesswork, the best approach is to develop a long-term investment strategy that’s based on your preferences and capabilities.
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