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Trump told me
Joe Biden was in a much fiercer battle than the polls predicted, but he eventually won the US presidential election. The question arises of how well the stock markets can perform after the Democratic president’s victory.
Fortunately, the outgoing president has made it to the IS capital markets, he has regularly shared his thoughts on Twitter in recent years, we know from him that it was practically because of the stock market rise, we may be very lucky to be president, and if Biden comes with it. the collapse as well.
We also don’t have to guess how big the collapse will be, relatively large,
According to Trump, exchange rates drop to roughly zero.
In early July, the president told reporters that since his election, the major US stock indices had risen significantly (a fact), the Dow Jones and the S&P 500 had risen nearly 50 percent, and the Nasdaq had risen nearly one. 100 percent. upload.
With another president, retirement savings would be reduced to nothing, the stock market would be reduced to nothing.
According to Trump, the rise in the stock market is due to measures taken by his own administration, such as the response to the coronavirus crisis,
It’s not luck, it’s talent
said the president modestly.
Fortunately, his forecast of the stock market outlook wouldn’t be the first thing that Trump doesn’t get, so just because he won’t be president of the US for the next four years doesn’t mean we need to worry. for a stock market crash yet.
Blue wave or red wave? No way!
The big question in recent days has been whether the blue wave can arrive, that is, the scenario in which a Democratic majority Senate operates alongside the Democratic president. Well, this scenario does not materialize in the current state of affairs, since although Joe Biden won the presidential election, it is likely that Republicans will maintain their majority in the Senate and Democrats will lose positions, but remain in the lower house, leaving different from the upper and lower houses of the legislature. -It will be a different color so it can work divided for at least another two years.
This means, therefore, that in the coming years there will be no composition of the legislature under which Congress will give the president a blank check to implement his economic policy plans.
And this portends one thing: market participants are opting for monetary rather than fiscal incentives,
Instead of the US government, they will pay more attention to the US Federal Reserve, which may be necessary to support the markets and continue the recovery.
Capital market expert Sven Henrich put it right on Twitter:
Investors are not interested in the blue wave or the red wave, only the liquidity wave.
Allianz’s top economic adviser, Mohamed El-Erian, also spoke recently that he is more concerned about the Fed’s moves than the outcome of the US presidential election. According to the expert, it is worth analyzing what has driven the markets so far:
- improve economic performance after the recession in the second quarter,
- stimulus packages,
- monetary stimulus.
What happens now?
- Economic fundamentals are not improving rapidly, mainly due to Covid,
- the next round of US stimulus packages has not yet been assembled, maybe it could be ready early next year,
That is, investors depend on one thing, namely, central bank liquidity-enhancing measures.
The Democratic president and the Republican-majority Senate predict that the chances of a stimulus package of $ 2-3 trillion have been significantly reduced, later on, and a much smaller package could eventually come together.
FAANG
In recent months, especially after the February-March global stock market crash, it has become clear that the stock market leaders are the stocks of big tech companies, so now, even after the elections, it doesn’t matter. what the prospects are for big tech companies. From his point of view, it is particularly critical in which direction the ever-expanding power cuts of the tech giants and the possible fragmentation of the giants are moving. There is mounting pressure on politicians around the world to restrict the operation of tech companies a bit, an issue that has also been at the crossroads of American political debates in recent months.
however, no substantial progress has been made so far, in part not because the US legislature has already split.
Republicans and Democrats attack big tech companies for different but increasingly vehement reasons, Democrats often accuse giants of anti-competitive activities, and Republicans repress right-wing views.
A Democratic president and a Republican-majority Senate predict that the two sides will not yet be able to join forces to regulate technology companies, meaning that while the coronavirus epidemic is likely to continue to affect traditional companies, leading companies in the online world they continue to suffer. gain strength, gain market share. This scenario favors FAANG companies, that is,
Facebook, whose stock price is up 43% this year,
Apple, whose stock price jumped 62 percent in 2020,
Amazon, whose stock price is up 79 percent this year,
Netflix, whose stock price jumped 59 percent in 2020,
and Alphabet (Google), which increased 32% this year,
And so is the overall technology overweight Nasdaq Index, which is up 38 percent this year.
What sectors could be positively or negatively affected by the Biden presidency?
There are several sectors that would clearly benefit from Biden’s economic policy, and also those that could clearly be harmed by the reelection of the new president.
Alternative energy, oil companies: Perhaps the most stark difference in the economic policies of the two presidential candidates is in energy, while Trump is seen as a major backer of the oil industry, Biden said in the latest pre-election television debate that would shut down the US oil industry. (This is obviously not how it works), Trump’s climate skeptic. , announced an energy program based on renewables. As Biden’s choices increased, so did the shares of renewable energy companies and oil companies’ values soared deeply (obviously, the election result did not just affect exchange rates, new restrictions due to the pandemic and falling oil prices also kept prices under pressure).
Infrastructure: Biden would invest thousands of dollars in infrastructure over the next decade to modernize and develop US transportation, energy, water and digital networks.JP Morgan named Vulcan Materials, Jacobs Engineering Group and Caterpillar as the top 3 expected beneficiaries in this segment. Investors have already begun to value Biden’s victory in recent weeks, the price of companies in the segment has recovered sharply, showing the change in the price of the basket formed by JP Morgan.
Winners in the segment can include AECOM, Jacobs Engineering or MasTec.
Fiscal benefits: Donald Trump has lowered the corporate tax rate from 35 percent to 21 percent, a move that has boosted corporate profits in the United States, leading to a surge in equity markets through various channels (such as buying of treasury shares). Joe Biden plans to increase the corporate tax, which could have a negative impact on overall stock prices, especially for companies that have benefited from Trump’s tax cuts. These companies’ basket of stocks has underperformed in recent months as Biden’s choices have improved.
Electric car: Biden is also proposing new tax breaks, government purchases, and other incentives in this area, not just from electric car makers like Tesla,
But providers of electric powertrains like Aptiv, Borg Warner or Visteon can also benefit.
Commercial conflict: After the Trump era, Biden may have slightly less focus on the trade conflict with China, but also other countries / regions, such as the EU, and benefit from US companies with a large share of exports, according to JP Morgan. Gamble, Thermo Fisher or 3M.
What can come now?
We’ve seen before that there are clear winners and losers between Joe Biden’s victory among different corporate sectors, but the bigger picture is colored by the relatively long process until the new president takes office and Donald Trump, who has yet to give up. There’s also likely nothing unexpected, regardless of what Biden planned ahead of the election, with a Republican-majority Senate having to give up on implementing some of the plans.
The following can be predicted with great certainty for the next few weeks:
- High volatility remains with us,
- and after the elections, two issues will be increasingly refocused: the measures to improve the liquidity of the US Federal Reserve and the epidemic situation.
While not the Democratic President + Republican-majority Senate is the best imaginable scenario for equity markets, it is even better than uncertainty, so the rally could continue in the near term, leading to encouraging historic stock indices. and easy to reach.
Cover image: Chip Somodevilla / Getty Images
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