The Biden Presidency --- its likely impact on Markets
If you're walking down the right path and you're willing to keep walking, eventually you'll make progress….Barack Obama
The US Presidential Elections of November 2020 saw as predicted a “Changing of the Guard” at the White House. Despite the closeness of the election there were no prolonged court battles as was the case in the year 2000. Further the successful approval of a few vaccines has brought hope that the pandemic could be effectively contained in the foreseeable future.
Equity markets in general do not like uncertainty and once those dark clouds were dispelled, the stock market gave a strong vote of confidence and fueled the animal spirits like never before. Since the elections concluded the Stock Markets have rebounded with a certain level of unique exuberance.
It is worthwhile to note the S&P 500 Index set new highs along the way. The returns from Oct 30 2020, the Friday prior to the election till Biden’s first day in office (Jan 20 2021) was a record breaking 17.8% . It clearly bested the earlier 9.22% record return achieved during the same time period when JFK was elected in 1960. The first year of JFK during 1960-61 saw a stellar return of 26.54% ; it will be interesting to see if the S&P-500 Index continues its upward trajectory and reaches the value of 4,138 by November 2021 to break the 1960-61 watermark. Currently the S&P-500 trades at 3,841.
Going forward the challenges to the new Biden administration cannot be minimized. The pandemic casualties are setting new highs every day in contrast to the stock market. The high unemployment numbers in the US are quite daunting to say the least.
The Biden administration is committed to investing in Infrastructure and rebuilding America. This is being welcomed by investors since it implies increased economic activity. Additionally the Federal Reserve has repeatedly stated that current low interest rates are likely to continue for some more time which encourages increased lending. Risk appetites have also resumed given the robust returns after the lows set in March 2020. This trifecta augurs well for 2021.
Hence as prudent investors we are cautiously optimistic. However by the same token we have to be aware that pullbacks and corrections are part and parcel of any Bull Market. As tactical investors we always have thresholds for taking defensive action and we have clear DefCon-1 (Defensive Condition 1) and DefCon-2 levels to guide our Asset Allocation.
In addition to Asset Allocation, individual stocks in our Core Holdings are monitored continuously. We aspire to maintain the right levels of risk and reward so that our portfolios perform optimally. We strive to achieve that by pruning positions and changing the investment mix appropriately without running the risk of over trading.
Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception...George Soros
