The current boom in the Biden market represents the second time in a row that Wall Street is cheering on a new president: shares gained more than 6% in the election period after Donald Trump beat Hillary Clinton in 2016. 100 days too.
But there is one big difference: Trump inherits an economy that grew steadily during the long recovery from the Great Recession. Biden enters the Covid-19 economy.
The stimulus expectations, coupled with the fact that Americans are starting to get coronavirus vaccinations, have raised hopes that the economy – and corporate earnings – will improve later this year.
Oil, banks and small-cap stocks get bigger boost in Biden
To that end, the energy and financial sectors have been the best performers since the election. Oil companies need to take advantage of an improving economy and rising crude prices, while banks often do better when there is a greater demand for loans.
Small-cap stocks also outperformed the S&P 500, a move that makes sense given that smaller businesses have more exposure to the U.S. economy compared to the large multinational companies that dominate the Dow and S&P 500.
The Biden boost is also in stark contrast to the performance of equities in the previous two cases that a new president came to power during turbulent economic times.
The S&P 500 fell more than 6% in late 2000 and early 2001 after George W. Bush defeated Al Gore. The election was also contested, contributing to the uncertainty already present in the market due to the dot-com bubble that burst earlier in 2000.
And the shares fell nearly 20% from November 2008 to mid-January 2009 after Biden’s former boss Barack Obama defeated the late John McCain. Investors were still extremely nervous about the collapse of Lehman Brothers and the then outcome of conspicuous bank failures.
But experts believe investors need to realize that the performance of the market between the election and the inauguration is not necessarily a harbinger of the future for the rest of the year.
CFRA investment strategist Sam Stovall noted in the report that “the S&P 500 is in arrears for the digestion of profits that could push the index value below the 2020 closing level.”
In other words, the rest of the year can be bumpy. But any setbacks could be short-lived: Stovall also predicted that any market withdrawals in 2021 would be ‘early enough in the year to allow time to recover all losses and set even higher highs.’