United States President Joe Biden speaks during an event with the CEOs of Johnson & Johnson and Merck in the South Court Auditorium of the Eisenhower Executive Office Building on March 10, 2021 in Washington, DC.
Alex Wong | Getty Images
In his young presidency, President Joe Biden was one of the best friends the stock market ever had.
Better than any president before him, dating back to at least the 1950s and the Dwight Eisenhower administration, as the 46th chief executive officer saw unprecedented growth on Wall Street in his first 100 days in office.
How long this cozy relationship will last is imminent as investors digest a number of potential roadblocks from tax policy, regulations surrounding Biden’s ambitious climate change agenda, and the risk of overheating in an already burning economy.
So far, however, investors have made huge stakes in American companies without hesitation.
“The first 100 days of Biden have already seen the strongest post-election equity returns in at least 75 years due to the record fiscal stimulus and the heavy use of executive orders,” JPMorgan Chase strategist John Normand said in a note. The results are “not bad for some [former President Donald] Trump was referred to as Sleepy Joe during the campaign. “
Indeed, Biden’s results so far have been astonishing.
The S&P 500 is up 24.1% since the day it was inaugurated – technically 96 days ago.
The only government dating back to 1953, or the beginning of Eisenhower’s tenure, to compete with Bidens was that of John F. Kennedy, which saw an 18.5% increase over the same period.
Even Trump, who often announced how well stocks were doing, only saw an 11.4% gain in the first 100 days.
Obviously, it is difficult to judge results this early in a presidency. In Biden’s case, it is particularly difficult to assess whether the market was responding specifically to him or simply continuing to ride the steam locomotive, which began in late March 2020 and has shown only sporadic signs of slowing since then.
“Everyone who became president this year has had pretty strong tailwinds,” said Art Hogan, chief marketing strategist at National Securities. “You get to a point where you just didn’t have to mess up and hopefully improve what you had to do.”
In fact, no president has had a tailwind quite like what Biden had received in January.
Congress had already provided more than $ 3 trillion in incentives, and the Federal Reserve had eased policy to the loosest point in the history of the central bank. In total, more than $ 5.3 trillion has been spent on relief efforts related to Covid, and the Fed’s bond purchases nearly doubled its balance sheet to just under $ 8 trillion.
Anyone who became president this year would have a pretty strong tailwind.
Art Hogan
Chief Investment Strategist, National Securities
With potentially trillions more spending on infrastructure, a term Congress Democrats paint with a generous brush, it gives future-minded investors even more reason to plow money into the market.
In addition, the US is still vaccinating about 3 million people every day and hoping that growth will continue as more of the economy comes back to life.
“It will be fascinating to see what the next 100 days will look like,” said Hogan. “There is significant tailwind for the reopening. The tug-of-war between virus and vaccine is finally won by the vaccine.”
What could go wrong
Even so, there is plenty to see as the sizzling bull market tries to rage on.
After all, the S&P 500 is up around 48% year-on-year and has not seen a significant decline in more than six months. From November through March, investors invested more money in stock-based funds than in the past 12 years, according to Bank of America.
In addition, 96% of the components of the comprehensive Wilshire 5000 have achieved positive returns over the past 12 months, which Hogan says is a record and has been achieved despite higher than usual volatility, especially in recent months.
“Of course I would worry about going too far and too fast,” said Hogan. “But the corrections seem to be on a rotation basis rather than an index basis. At some point there will be something that messes this up.”
The markets have continued to rise, knowing Biden has his sights set on the richest earners and businesses in the country. Both groups are likely to expect significantly higher tax burdens.
However, concerns remain about political errors in other areas.
All of these incentives already resulted in a budget deficit of $ 1.7 trillion in the first half of fiscal 2021, raising concerns about funding for this red ink.
At the same time, the Fed has announced that it will only start tightening when it appears that inflation has been above its traditional 2% target for an extended period of time, as it moves towards full and inclusive employment.
Mohamed El-Erian, Allianz’s chief economic advisor, said the “results-oriented” approach to monetary policy was a mistake, especially given the sharp rise in inflation. El-Erian told CNBC that “massive liquidity and a significant recovery in economic activity” should and should continue to drive markets unless there is “either some political error or some form of market distortion”.
One area he’s watching is the Fed meeting this week.
It is almost certain that the Federal Open Market Committee of Politics will not change policy or even suggest that rate hikes or a slowdown in asset purchases are on the horizon somewhere. El-Erian said he would like to see a gradual tightening that will begin soon.
“The risk of relapse is high. Then you have to step on the brakes,” he said on “Squawk Box”. “That’s the only thing that can really upset the markets when they hit the brakes, so I’d rather see them step on the brakes now than have a very high risk of them putting the brakes down the road actuate.”
While Fed officials have recently categorized the higher inflation numbers as temporary, El-Erian points out that supply-side inflation, like with semiconductors and a number of consumer products, suggests it may not.
“I’m really concerned that what they hope will be temporary inflation will be persistent inflation,” he said. “If we end up in a persistent inflationary world, they have to step on the brakes and the market reaction will be much worse than if they tapered off just a little now.”
Correction: In an earlier version, the exact number of days since Biden took office was incorrectly stated.
