While legal challenges are underway, the Associated Press on Saturday called Pennsylvania for Joe Biden, which would push him past the 270 Electoral Count threshold. While this process may feel like an eternity, Biden’s timing from a market perspective may be impeccable. Don’t get us wrong. There are challenges ahead. COVID-19 cases are rising, and the threat of economically damaging lockdowns is elevated. However, history has taught us that the presidents who have experienced outsized market returns typically were inaugurated in troubled economic environments. Presidents Reagan (high and rising inflation) and Obama (global financial crisis) immediately come to mind. Rather than dwell on the near-term negatives, let’s instead focus on the potential tailwinds that would likely be supportive to markets in a Biden administration. Five potential tailwinds that could drive markets
Is this a “Goldilocks” environment?Investors often ask strategists to compare the current environment to a period in the past. 2011 to 2014 comes to mind. Those years had a Democratic president, a divided Congress, an improving economic and earnings backdrop from very depressed levels, the Fed Funds Rate at zero, and stocks cheap to bonds. Forgive us for having déjà vu. That period proved to be favorable for equities and for credit. In fact, this could be a Goldilocks environment — not too hot to cause inflation, but not too cold, either. A Biden presidency with a Republican Senate would be unlikely to see any increase in taxes, which was arguably the biggest fear investors had about a Biden presidency. And a Biden presidency could mean a return to a more traditional, predictable approach to trade policy, which would likely result in less volatile markets. But would it also mean stalled progress on other issues? Assuming a narrow Republican majority in the Senate, and a centrist approach by Biden, such a divided government might not mean total gridlock. In particular, Biden might be able to eke out a decent stimulus bill by forming a coalition with moderate Republican senators. While few may have expected this or wanted this outcome, it could prove to be a “best-case scenario.” In short, Joe Biden has spent nearly half a century in politics, but his timing may yet prove impeccable. 1 Source: Investment Company Institute, as of Nov. 4, 2020 2 Source: Bloomberg, L.P., Standard & Poor’s, as of Sept. 30, 2020. As represented by the difference between the earnings yield of the S&P 500 Index and the 10-year US Treasury rate 3 Sources: Bloomberg, L.P., Standard & Poor’s, looking at 10-year time periods, rolling monthly, going back to 1957. Based on the S&P 500 Index and the Bloomberg Barclays US Aggregate Bond Index. 4 Sources, Bloomberg, L.P., Organization for Economic Cooperation and Development Important information Blog image credit: Stephen Morris / Stocksy Past performance does not guarantee a profit or eliminate the risk of loss. All investing involves risk, including the risk of loss. The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market. The opinions referenced above are those of the authors as of Nov. 8, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. from https://www.blog.invesco.us.com/five-forces-that-could-propel-markets-during-a-biden-presidency/?utm_source=rss&utm_medium=rss&utm_campaign=five-forces-that-could-propel-markets-during-a-biden-presidency
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