Biden wins: what will happen to the stock market?

What will happen to the stock market now Biden has won? We look at the new president’s priorities, and historical data on what’s happened to the S&P 500 in the past.

what will happen to the stock market                                 

After days (and days) of waiting – and endless vote counting – a winner in the US presidential race was finally declared on Saturday. Joseph R. Biden Jr. will be the 46th man to lead the United States, with Kamala Harris becoming the first woman to serve as vice president. Donald Trump was on a golf course in Virginia when he learned of the news, breaking his silence to tweet:

“71,000,000 Legal Votes. The most EVER for a sitting President!”

So… what will happen to the stock market now that we have a clear winner? Is all of this election drama now well and truly behind us? Here, we’re going to take a look at the US stock market forecast, as well as some of the equities that could benefit now that a Democrat has been selected to serve in the White House.

What will happen to the stock market this week?

The forecast of the US stock market for the coming days is somewhat difficult to predict given how the outcome emerged over the weekend. However, we did get an early indication of what to predict on Sunday, when stock markets in the Middle East began trading. Indices in Israel, Saudi Arabia, Dubai and Oman all clocked gains – hopeful that a Biden presidency will take some of the heat out of international tensions. This is even more surprising given how a Biden stock market is better for clean energy equities than it is for oil, the bread and butter of the Middle East, given the president-elect’s determination to tackle climate change.

Of course, Biden won’t actually set foot in the Oval Office as POTUS until 20 January, the day of his inauguration. But nonetheless, attention is now returning to the much-needed stimulus package that is yet to be passed in Washington. Will his election prompt Democrats and Republicans to work together more closely, echoing Biden’s calls for bipartisanship during his victory speech in Delaware?

It’s worth noting that such collaboration is going to be crucial if Biden is going to deliver on his legislative agenda in any meaningful way. The US stock market after the election was buoyed, in part, by Biden’s apparent failure to secure a “clean sweep” by taking the White House, as well as both chambers of Congress. This means he will have to compromise on some of his more radical measures, such as tax rises and investigations into big tech.

Another positive factor for the US stock market forecast lies in how the Democrat appears to be wasting little time in drawing up a response to the coronavirus crisis – a pandemic that is worsening in America by the day. (An astounding 126,156 new infections were reported on 7 November, as well as 1,013 deaths.) Late on Saturday night, Biden announced that he will be appointing a 12-member team focused on tackling COVID-19 on Monday.

It’s easy to see what will happen to the stock market if the president-elect devises a clear blueprint for taking action. The pandemic continues to hurt the economy, with hundreds of thousands continuing to lose their jobs and businesses suffering dramatically lower demand. Wall Street will likely welcome a focus on science, especially given how reports suggest Donald Trump has stopped meeting his own coronavirus taskforce, and plans to fire Anthony Fauci, one of America’s top infectious disease experts.

Forecast of US stock market: Historical analysis

Before we explore Biden stocks in further detail, let’s look at the performance of the US stock market during election years. Donald Trump is only the 11th president to be ejected out of office by the electorate after a single term. What makes the events of this election unusual is that, based on historical data relating to the S&P 500, Trump should have had this in the bag. Over the past 100 years, as long as this index is trading higher in the three months before the election than it was at the start of the year, incumbents have won a second term 87 per cent of the time. (Of course, there were many other factors affecting this particular race, COVID-19 being one of them.)

USA 500
Daily change
3966.2
Low: 3916
High: 3972.5

Analysing market trends over past decades when new presidents have entered office can also tell us how a Biden stock market will perform. Even when there isn’t an election, the S&P 500 tends to enjoy a boost in the final month of the year – but here’s an interesting titbit: equities have enjoyed gains 84 per cent of the time in Decembers immediately after a vote, but just 74 per cent of the time across all Decembers.

One potential factor that could affect the US stock market forecast is the fact that Biden won’t have a united Congress behind him. In the 12 months after the election, the S&P 500 tends to rise by 10.6 per cent if one party has control across the board. When there is a split in Congress (the scenario that Biden currently finds himself in), average gains tend to slide to 8.6 per cent.

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There had been fears about what will happen to USD if and when Donald Trump contests the result through recounts and legal challenges. But at the moment, it seems like these threats have fallen on deaf ears to some extent. World leaders have proceeded to congratulate Biden on his win – a sign that countries around the world don’t believe the Democrat’s victory to be illegitimate. Election officials across the US have stressed that they have seen no evidence of impropriety in the process, and even in states where there’s going to be a recount because of Biden’s razor-thin lead, it won’t make a material impact to the nationwide picture because Trump still won’t have enough Electoral College votes to win.

In terms of what will happen to USD in the long term, many analysts were expecting that the dollar would weaken irrespective of whether Trump or Biden came out on top.

Stocks to buy after the election

Now the dust is starting to settle, what are the Biden stocks that could be of interest to investors who are hoping to capitalise on the result?

Issues he highlighted during his victory speech could prove instructive:

“The battle to control the virus. The battle to build prosperity. The battle to secure your family’s healthcare. The battle to achieve racial justice and root out systemic racism in this country. The battle to save the climate.”

Recommended Biden stocks could include those focused on renewable energy, and building the infrastructure that’s necessary for a greener future. Even companies such as Tesla, which aim to promote a shift away from gas-guzzling cars towards more eco-friendly electric vehicles, could be set to benefit. Health insurers are also well-placed to see gains, given how Biden wants to enhance the Affordable Care Act to ensure that greater numbers of Americans can access insurance.

Tesla Inc
Daily change
172.81
Low: 169.56
High: 175.05

The ups and downs that we see in the markets over the coming weeks and months won’t be solely down to Joe Biden’s new administration, but they will likely have an impact. But here’s one thing that will soon become a distant memory: stocks surging or crashing based on a 280-character missive from the commander in chief’s Twitter account.

FURTHER READING: Dollar down as Biden eyes the prize

FURTHER READING: Financial markets remain cautious as US election hangs in the balance

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