The S&P 500 notched its best election week rally since 1932. And despite a sharp pullback Monday, the Dow soared nearly 12% in November, its best month since January 1987. The S&P 500 and Nasdaq enjoyed their best month since April.
“In terms of Biden being bad for the market, we can already see the opposite is true,” said Daryl Jones, director of research at Hedgeye Risk Management.
Wall Street has moved on from Trump
There’s no doubt that Trump’s tax cuts and deregulation helped boost markets. His trade war with China and love of tariffs, however, were clear negatives for stocks.
“Biden is showing us that from a business and economic standpoint, he’s likely to be moderate,” Jones said.
“The fear was there would be a seriously contested election,” said Kristina Hooper, chief global market strategist at Invesco. “Certainly, it’s being contested but there’s a recognition there’s a very, very slim chance that President Trump will actually succeed in his bid to overturn the election results.”
Gridlock beats blue wave
Democrats would need to win both Georgia runoff races in order to get control of the Senate, with Vice President-elect Kamala Harris breaking a 50/50 tie.
Divided government in 2021 means Biden won’t be able to raise corporate and personal taxes, a huge relief to investors. It will also limit the ability of Democrats to pass sweeping climate legislation.
Markets are focused on ‘game changer’ vaccines
But investors are looking past the worsening pandemic and focusing instead on enormous progress on vaccines.
“The vaccine news is a real game changer,” said Hooper. “The stock market has this great ability to look through immediate headwinds to a future that appears brighter.”
Now, there is greater confidence of a stronger economic recovery in 2021 that will include hard-hit sectors like travel.
Bank of America economists predict global GDP will surge by 5.4% in 2021, the best year since 1973. US GDP is expected to increase by 4.5%, the strongest since 1999.
“A year of vaccine not virus, a year of reopening not lockdown, a year of recovery not recession,” Michael Hartnett, chief investment strategist at Bank of America, wrote in a note Monday.
The gap between rich and poor is getting wider
The market boom sends a positive signal that can encourage nervous consumers and corporations to spend instead of hunker down. That, in turn, can boost the real economy.
And the surging stock market is likely exacerbating the divide between rich and poor because affluent families have far more skin in the game.
No matter who owns stocks, markets can’t go up forever.
At some point, the vaccine optimism will all be priced in. The epic rebound on Wall Street — the S&P 500 is up a stunning 61% since the March 23 low — has driven up market valuations to levels unseen since the dotcom bubble.
Bank of America’s Hartnett argued it would be “silly to think big stock market gains from here” won’t cause negative responses, including higher inflation, higher taxes and higher bond yields. That’s why he’s advising clients to “sell into strength on vaccine in coming months.”
“We expect peak prices in early ’21,” Hartnett wrote.