President-elect Joe Biden speaks as he announces members of the business and jobs team at his interim headquarters in Wilmington, Delaware on Jan. 8, 2021.
Kevin Lamarque | Reuters
President-elect Joe Biden moves into the White House next week with the greatest tailwind in the stock markets since a presidential election day dating back at least 1952.
According to CFRA data starting this year, the nearly 13% gain since Nov. 3 would be the S&P 500’s biggest surge between election and inauguration if gains persist. The 8.8% increase in President John F. Kennedy was the best, followed by President Dwight Eisenhower with 6.3% and President Donald Trump with 6.2%.
Biden’s promise of the $ 1.9 trillion bailout he announced Thursday is one of the reasons stock markets surge. This will be a big focus of the markets in the coming week as investors hurt their chances of getting Congressional approval.
The Martin Luther King Jr. Day holidays begin during the week, and over the next four days several dozen S&P 500 companies are reporting profits. Bank of America, Goldman Sachs, IBM, Intel, and Procter & Gamble are among the companies reporting.
Biden won’t have a honeymoon
The stimulus package of $ 1.9 trillion is high on the agenda. But there’s also a significant focus on whether his government can better control the pandemic and roll out the vaccine as he promised.
“This is the number he came in on. Where are negotiations going from here?” Quincy Krosby, chief marketing strategist at Prudential Financial, said of the $ 1.9 trillion package. She highlighted concerns about a weakening economy, reflected in December retail sales, with a surprising drop of 0.7% and weekly jobless claims at their worst level since August.
“You could argue that this is related to Covid. So the most important thing going forward is to see the logistics of vaccines and get vaccinations going properly. This is vital for the market,” she said.
Krosby said the market is focused on the inauguration.
“They want it to run smoothly and that there is no security breach. The market has absorbed the events of January 6th. The market looked ahead to find that at that point it was a one-off and the market higher ended on Jan 6, “she said. “But the market becomes much more defensive when what we viewed as an isolated event suddenly expands.”
The inauguration is raised after a crowd of Trump supporters attacked the Capitol while Congress confirmed the election of the electoral college. Parliament decided last week to indict Trump with incitement to mob, and now there are concerns about further incidents in Washington or in state capitals.
Stimulus and stocks
Markets are also watching closely to see if Biden can bridge some of the deep gulf between Republicans and Democrats who now have a slim majority in Congress.
“We get suggestions, and now the question is, ‘OK, you should be this great compromise maker,” said Sam Stovall, CFRA’s chief investment strategist.
Political strategists expect Biden to receive his stimulus package, but it is being cut. Ed Mills, Washington political scientist at Raymond James, said the package could be cut to about $ 1 trillion based on the size previously discussed by House Speaker Nancy Pelosi and outgoing Treasury Secretary Steven Mnuchin.
“After an extraordinarily weak start to this year, does Congress want to show bipartisan support, to say the least?” Mills said. He said the stock market should continue to do well as it will receive stimulus spending.
“DC will be there with more spending or consumers will be there with more spending if they have the opportunity to get into a post-vaccination world sooner,” he said.
Stovall said if history is a guide, the exchange should do well with Biden. The average profit of the S&P 500 in the first 100 days for Democratic presidents is 3.5% and dates back to 1952. For Republicans over the same period, the average was 0.5%.
The S&P 500 rose an average of 11.3% in the first year of a Democratic president, but only 5.7% for Republicans, which goes back to World War II.
The stock market will continue to monitor the bond market after the 10-year government bond yield hit a high of 1.18% last week, its highest level since March. It has since fallen to around 1.08% on Friday’s weak data.
“There are other things going on in the back room. Bond yields have been up lately, and it’s been a change. You got a sense of how fast rates can move,” said James Paulsen, chief investment strategist at Leuthold Group. “It could be a preview of what to expect this year.”
Calendar for the week ahead
Martin Luther King Jr. Day
Merits: Bank of America, Goldman Sachs, Netflix, Charles Schwab, Comerica, Halliburton, State Street, Interactive Brokers, JB Hunt, Zions Bancorp, FNB
8:30 a.m. Survey among managing directors
4:00 p.m. TIC data
Merits: Procter & Gamble, US Bancorp, Citizens Financial, Bank of New York Mellon, Fastenal, United Airlines, Alcoa, Discover Financial
10:00 am NAHB survey
Merits: Intel, IBM, Travelers, Baker Hughes, CSX, PPG Industries, Intuitive Surgery, Northern Trust, Union Pacific, Truist Financial, Fifth Third, KeyCorp
8:30 a.m. first claims
8:30 a.m. Housing construction begins
8:30 a.m. Manufactured by the Philadelphia Fed
Merits: Regions Financial, Schlumberger, Ally Financial, Huntington Bancshares, South Kansas City
9:45 a.m. Manufacturing PMI
9:45 am Services PMI
10:00 a.m. Existing home sales