The new president takes charge on January 20, 2021. We expect to see the stock market respond with a rally for value stocks and those connected to infrastructure investments. A split Congress will likely delay any tax increases and interest rates are likely to remain low for a long time. The pandemic will subside with multiple vaccines available and the economy will improve which will drive value stocks higher, perhaps at the expense of tech stocks that have benefited from stay-at-home work.
Low Interest Rates
Low interest rates have been a major driver for the stock market. Bonds and bank CDs offer little return on investment capital making stocks the only investments that offer decent returns. Until the economy has recovered, which may take years, interest rates are likely to remain low and keep driving money into the stock market. Negative interest rates would only do so more rapidly.
The sorry state of American infrastructure needs to be addressed and likely will be by the upcoming administration. This is likely to be largely a “Buy American” effort that will stimulate the economy, provide needed jobs, and spread prosperity throughout the country. Although roads, bridges, airports, and ports are commonly noted to need uplifts, advanced technical efforts like upgrading to 5G will also benefit.
No Tax Increases
The disparity between the rates normal people pay in taxes and what the super-wealthy pay has been in public discussion for some time. However, to raise corporate taxes and plug loopholes for the super-rich, the Democrats need to control both houses of congress. Right now they are two short of a 50-50 tie. Because Vice President Harris can vote to break a tie, the Democrats need to take both senate seats that are in run-off elections in Georgia. Although they may flip one of them, taking both seems like a long shot. As such we expect the Republicans to keep control of the Senate and block any efforts at increased taxes on your investments.
The Pandemic Will Subside
As painful as the Covid-19 pandemic has been and as burdensome it has been on the economy, it will subside. There are three vaccines (and counting) ready for review and possible initiation of vaccinations by the end of December 2020. Producing workable vaccines in less than a year has been barely short of magic considering that the process typically takes a decade or more. Everyone does not need to get vaccinated. If the number of folks who get vaccines plus the folks who have been ill and have recovered gets to the 70% range, the pandemic will begin to subside. This will allow life to start returning to normal. That won’t require any laws to be passed to political arm-twisting. Money will start to flow and value stocks, especially, will benefit.
Democrats Tend to be Better for the Stock Market
The stock market has tended to do better when a Democrat is in the White House and so does the economy. This is generally because there is more money being spent and spread around. We don’t expect the Biden administration to be any different. For some thoughts about potential Biden bull market investments, take a look at what The Motley Fool writes about stocks to look at for a Biden bull market.
Biden Bull Market Investments – Slideshare Version
Biden Bull Market Investments – Doc