Biden Was Elected. And Stocks Didn’t Crash.

It makes sense — sort of.

When you assess the incoming economic data and the performance of various financial assets following an election, you should consider whether the result of that election might be influencing the data and/or the price action.

Donald Trump made that argument on too many occasions to count over the course of his presidency, insisting that he deserved credit for anything and everything good that happened from the time he won until his inauguration in January of 2017.

Trump’s insistence on that and, in the same vein, his incessant warnings about a biblical stock market crash in the event voters chose Joe Biden in 2020, serve as the context for the simple visual below, which shows that to this point in the election cycle, Biden is off to a pretty solid start.

I can hear the objections now: “That’s meaningless!” “There are too many factors to consider to make that a worthwhile chart!” “You can’t read anything about a president into a few weeks of S&P returns!” And so on.

Here’s the thing: All of those objections are duly noted, and those who would lodge similar complaints when presented with the chart (above) would be largely correct.

But Trump set this up. For four years, he loudly claimed that the economy and markets began anticipating and pricing in, respectively, his policies from Election Day. As such, his record on both stocks and the economy should include the lame duck session and the first three weeks of January. He also promised that stocks would crash and that Americans would see their retirement funds wiped out upon a Biden victory.

Well, here we are, three weeks on from the election and stocks haven’t crashed, unless you mean crashed up. The very same small-caps that folks thought would benefit from Trump’s win in 2016 are perched at record highs. The Russell 2000 is on track for its best month in history. Global equities are having their best month since 1988.

This week, Trump held a short, ad hoc press conference to celebrate Dow 30,000, a milestone he described as “sacred” and attributed to vaccine optimism.

He was obviously correct to suggest that stocks are excited about the prospect of medical breakthroughs with the potential to end the pandemic. But it’s also true that stocks’ most recent gains are at least partially attributable to political clarity (i.e., Biden won and the results won’t be overturned) and to news that Janet Yellen will become Treasury Secretary.

Market participants spent most of the last four months warming to the idea of a Biden win, comforted in the notion that more predictable foreign policy, less domestic strife, and the absence of “tweet risk,” would more than compensate for the drag from higher corporate tax rates and possible selling attached to a capital gains tax hike. When Republicans performed better than expected on the down-ballots, markets were emboldened by the notion that tax hikes might not be coming at all.

Ultimately, a confluence of factors contributed to what’s shaping up to be one of the best Novembers on record for US equities.

As far as Trump’s contention that putting a “legendary” businessman in the White House would invariably lead to blockbuster gains for stocks, he was kinda, sorta right.

Trump’s stock market through October 31 ranked sixth historically (h/t Sarah Ponczek). Note that both terms for Clinton and Obama make the top 10 list.

Perhaps Trump would have grabbed the top spot in a second term. Alas, we’ll probably never know.


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5 thoughts on “Biden Was Elected. And Stocks Didn’t Crash.

  1. Interesting turn of events and I remember some comments predicting the fact that the whole Election scenario would likely become a “blooper nonevent ” similar to Y2K which was hyped to likely stop the World from turning … System bullish by default as options for placing money become more and more scarce.. Thanking H….for keeping us on the rails and more exposed to the realities than we might be otherwise..
    Happy T -day to all .

  2. Businesses don’t like uncertainty and they discretely said so prior to the election via a few spokes-organizations so as not to be the target of a Trump tweet attack. I would argue that the primary reason for the ‘melt-up’ in the last 2 weeks was the Biden presidency looking more and more certain each day.

  3. that and probably a lot of downside protection being sold as it’s becoming clear that the worst case scenario playing out is now highly unlikely.
    These causes are intertwined, of course

  4. Worst case election scenario (chaos) averted: 30%.
    Vaccines: 70%.

    That’s my sense of it. Look at how indicies, sectors and styles performed 11/3 to 11/9, then from 11/9 on.

    The first part was a generalized lift, hedges were unwound but the average institutional portfolio (growth, mega-cap, and tech-heavy) didn’t have to change all that much.

    The second part has been a large rotation. During the second part, momentum among the FAANNMGs has been uneven, although new leaders have emerged, and institutions have had to start changing sector and style allocations, if they are nimble enough.

    Trump – ehh, the Street got tired of him long ago. Other than cutting taxes in 2017, he hasn’t delivered much of anything new to investors, while cutting the legs out from ordinary people.

  5. Ah Covid, Covid, Covid … we’re turning the corner. You won’t hear any more talk of Covid after the election. He was right about one thing…Covid was turning the corner… straight up. What a buffoon.

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