What Stocks Look Like Under A President Biden
Taylor Tepper, Forbes Staff
Investors are an anxious lot.
With each new change announced for the West Wing or Congress or Fed Chair, money managers across the nation field antsy calls from clients demanding to know just how the news will affect their net worth.
And for understandable reasons: Presidents, along with other Washington power players, determine trade with foreign governments, tax rates and spending levels, all of which can impact corporations’ future profits and by extension your ability to one day retire in peace.
Problems arise, though, when people try to trade off how they think those trends might play out for specific companies or industries or are overly influenced by their emotions, rather than staying the course.
“One of the reasons I have a job is to stop people from freaking out over the news,” says Bryan Bibbo, lead advisor with The JL Smith Group in Avon, Ohio. And with the election results, people are especially anxious about what’s in store for additional stimulus—and by extension the economy and their investments.
Even Without Additional Stimulus, the Economy Is Already Improving
One reason investors have had to wait at least this long for more fiscal spending is that some portions of the economy, despite contending with a higher number of cases and hospitalizations in the past few weeks, have recovered in recent months. This provides less incentive for some lawmakers to enact more stimulus quickly.
The unemployment rate dropped to 6.9% in October after rising to almost 15% in April while the percentage of people employed in the labor force rose to 61.7%, up from 60% over the same time period. In a matter of months, the S&P 500 swiftly went from a devastating bear market to all-time highs.
Those who’ve been able to stay employed and invested during the coronavirus recession are enjoying the good part of the K-shaped recovery and are already acting as if things were back to normal, notes James Paulsen, chief investment strategist of the Leuthold Group.
Auto sales, home improvement projects and housing starts, for instance, are big endeavors that require consumers to believe that they’ll still have a job in the months to come. All three metrics are seeing gains.
“Individuals living paycheck-to-paycheck, frightened about losing their job or an economic collapse, would not have driven pending home sales to levels higher than at the peak of the 2005 housing boom,” Paulsen wrote in a recent report. “Nor would they have propelled housing starts to one of the highest levels in 13 years!”
The Biden administration can build on these numbers, especially with advances from the medical community.
Stocks soared on news that Pfizer and its partner BioNTech had developed a vaccine that proved to be more than 90% effective and could start to be deployed to high-risk individuals by late November. Meanwhile, the FDA gave Eli Lilly permission to deploy its antibody treatment for those with a mild-to-moderate case of Covid-19.
All of this, plus near-zero rates by the Federal Reserve, could be the recipe for fast economic growth in 2021 and higher returns for investors. Any amount of additional stimulus the Biden administration can provide may only improve things faster.
“People can get emotional in a political environment,” says Alex Reffett, co-founder of Atlanta-based East Paces Group. “But if Biden signs a stimulus bill, do you really think that’s going to hurt the stock market?”
All of this is to say you shouldn’t adjust how you invest just because a particular president is voted into office. Admittedly this may be difficult if the market volatility remains high, as CFRA chief investment strategist Sam Stovall expects.
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