Written by Norman Isaac Mwambazi

Stock market rises to record highs under Biden. Here’s why

When Joe Biden won the US presidential election in November last year, his win sent shockwaves to almost all stock …

When Joe Biden won the US presidential election in November last year, his win sent shockwaves to almost all stock markets around the world.

In Japan, the Nikkei Index of the Tokyo Stock Market rose 2.12% to 24,839 in the morning trading session of November 11, to reach its highest point in 29 years following Joe Biden’s victory.

In the UK, the FTSE 100 Index, Britain’s stock market jumped 4.4%, the equivalent of 260 points to 6170. This was the market’s highest level in almost a month.

In Europe, all the main markets like Germany’s Dax rallied 1.9%, and France’s Cac rallied 1.8% making the Europe-wide Stoxx 600 index rise by 1.4% to its highest level since October 14, 2020.

The MSCI world equity index also rose 0.5% to record high in early European trading of November 11. This index tracks shares in 49 countries worldwide.

China, Hong Kong, and Australia experienced similar trends, with the Shanghai Composite going up by almost 1.9%, Hong Kong shares rising 1.2% and the ASX200 in Sydney rising by 1.75% respectively. All that happened a few days after Joe Biden was declared as the next President of the US.

Since then, the markets, especially in the US have not looked behind, and Biden has seen them grow historically, outperforming the gains of his predecessors going as far back as Harry Truman in the 1940s.

According to data from CFRA, since November 3, 2020 (Election Day), the benchmark S&P 500 has gained 26% as at Friday, June 11, 2021, which is the best stretch for stocks 220 days after a presidential election since World War II.

The only administration going back to World War II that came close to registering stock market figures as strong as Biden’s gains was that of John F. Kennedy. The Kennedy administration posted an 18.3% gain in the same time span.

What fuelled the “Biden Boom”?

Over the last couple of months, we have been highlighting the reasons behind the continued bullish behaviour of the stock market but we will be glad to repeat them because we are cool like that.

First off, the massive stimulus package. Joe Biden built on top of the previous two stimulus packages that had been passed by the Trump administration, and passed his $1.9 trillion package just a few days after his inauguration. This “stimmy”, of which a sizeable chunk of it was invested into the stock market and cryptocurrencies by young investors had a ripple effect on the overall performance of the stock market.

Another factor that has boosted the stock market under Joe Biden is the determination of the Federal Reserve Bank to keep interest rates to a near-zero levels, something the Fed had done throughout the COVID-19 pandemic even before Biden took office. The improving unemployment or employment rate depending on what angle you look at it, has been cited by analysts as a reason that could prompt the Federal Reserve Bank to take its foot off the interest rates pedals sooner than anticipated but it has not yet done so.

One of the factors that have fuelled this “Biden boom” is the rapid rollout of the COVID-19 vaccine both in the US and abroad which has helped the recovery of global economies as more people are returning to work and infections significantly falling, save for a few countries like India, Brazil and a few in Africa who are still struggling to contain the virus.

Others factors that analysts say to have added to investor optimism is an infrastructure plan under the Biden administration.

With all this being said, it is worth noting however that presidents don’t have much influence on the stock market but the recent gains typically mean well for Wall Street for the rest of the year, financial experts say.

According to Sam Stovall, the chief investment strategist at CFRA, whenever the stock market starts the year with strong figures, questions start being asked whether all of the good stuff is behind us. However, He answers that question that we still have something to look forward to and that “It likely won’t be as good as the first half, but I’ll take it.”

What’s next?

According to CFRA data, the last six months of the first year of a new U.S. president’s term are historically characterized by steady gains in the stock market. Since 1945, the benchmark S&P 500 has posted an average gain of 5.1% in that span and has been positive 68% of the time over that stretch.

After one of the best starts to a bull market in history, the recent record rally is showing signs of fatigue. While the S&P 500 has surged more than 80% since it hit a low during the onset of the coronavirus pandemic last year in March, market forecasters project additional stock gains in the second half of 2021 to be more modest.

The second year of a bull market tends to be choppier, with positive but moderating returns and periodic pullbacks.

Jeff Buchbinder, the equity strategist at LPL Financial said in a note thus:

“A strong economic recovery lies ahead as the reopening continues, bolstering a very strong earnings outlook. In the second half of the year, however, as inflationary pressures build, interest rates potentially rise further and this bull market gets a little older, the pace of stock market gains will likely slow and come with more volatility.”

However, Megan Horneman, the Director of Portfolio Strategy at Verdence Capital Advisors predicts doom for the Biden administration’s stock market in the near future, after enjoying record highs.   

“It’s going to get tough for (Biden) going forward. There are still issues with the economy, whether it is a supply crunch, inflation or a labour-market shortage.”

Horneman has a point. There have been complaints that although the economy is becoming more open, people are still reluctant to go back to jobs and many of them are still opting to enjoying unemployment benefits. The reports have made some states announce that they will significantly cut unemployment benefits from June onwards.