Biden Bump Or Covid Slump - What Will 2021 Bring?

The following is a contributed article from a content partner of Benzinga

It seems strange to think that we are already at the end of what has been a momentous year.

Photo: NATO

Who could have predicted in January that we would end the year having seen an unprecedented pandemic, a president who still refuses to concede the election and the Dow losing 2000 points in a single day?

So making any predictions about what the coming year could bring is always going to come with a significant health warning, but we’re doing it anyway!

The Biden bump

Historically the first 100 days of a presidential term has seen a decent rise in stocks with both Barack Obama and George Bush Snr seeing 8% or more increase in the S&P500.

Source: reuters

Although interestingly the indices have risen 75% of the time for the same period every year whether a new president has been inaugurated or not.

Whether you are a Trump supporter or not it is difficult to argue that the last four years haven’t been without their incident and it may be that we see a bump as the markets predict calmer waters ahead.

The party affiliation of the president makes no difference to the likelihood of a stock market rise. Bill Clinton and Calvin Coolidge each saw a near 250% increase in the stock market during their terms in office despite coming from opposite sides of the political fence.

Source: macrotrends

So the prospect for profits in stocks is unaffected by the fact that Biden is a Democrat and more around his personal performance.

Anecdotal evidence suggests that the market generally sees Joe Biden as increasing taxes and regulation, but also providing a jobs stimulus, decreasing immigration tensions and looking outwards towards repairing the trade war with China.

Consequently, the sentiment jury is out until we see whether the president-elect is able to get his policies into action or not.

The Covid slump

The pandemic has been an unprecedented shock to the world’s financial systems and the US hasn’t been immune.

The lockdown saw a rotation into tech stocks as the workers of the world began to go online spending their days accessing remote information and meeting over Zoom.

Since the announcement of vaccines in November, we have seen a rebalancing with confidence returning to the healthcare sector and this is something that we could see continue into 2021.

As drugs are rolled out and the wholesale vaccination process begins it is distinctly possible that we will see a return of that market confidence across all sectors.

That having been said, the outlook is still far from rosy and we can expect a series of local lockdowns to continue until the population has effectively become immune to the virus.

The Fed’s business support measures were widely applauded but with future fiscal stimulus measures currently deadlocked, it is to be hoped that the democrats and republicans can come up with an agreeable bipartisan approach that will bolster confidence.

The jobless figures were expected to rise in the weeks leading up to Christmas however the announcement on December 9th brought the lowest number of job gains for three months and an unadjusted 853,000 new claims exceeding the 725,000 estimate and the previous week’s total of 716,000.

If the pandemic affects unemployment by more than the market expects then we could well see downward pressure.

Good stocks will still do well

Although we are entering difficult and uncertain times the fundamental truth remains that good stocks will always do well. Looking at some interesting stocks to watch this week and their performance we can see that opportunities are certainly available.

The Airbnb capital raise of $3.5bn saw its share price open 115% on Thursday 9th December showing that good businesses can not only raise money during a crisis but also provide value for investors.

Food delivery company DoorDash opened on the NYSE on 8th December at $182 which was a 78% premium over its IPO price and the business valuation of $34bn exceeds by a long way the $15bn private market valuation from earlier in the year.

This has led to some commentators suggesting that there could be the beginnings of a dot-com style bubble especially around new listings where the market has significant untapped liquidity looking for a home.

The conclusion has to be that there are bargains to be had out there and investors need to be monitoring the market and doing fundamental research on businesses that appear to offer an opportunity.

The Fed’s policy of keeping interest rates at or near zero is likely to last for the next three years or so and this may lead to investors looking for homes for their money that is going to provide an income return.

Uncertainty can be your friend

For committed day traders a volatile market with high volume is as close to nirvana as it is possible to get so certainly for the first few months of 2021 it looks like the short-term prospects are good.

But for people who wish to hold their investments a little longer, it may be better looking towards blue-chip stocks with a Warren Buffet quote in mind - “Uncertainty actually is the friend of the buyer of long-term values.”

However, you look at the prospects for 2021 it is certain that it won’t be boring and when we look back in 2022 we wonder whether it will be as momentous as 2020 has proved to be.