The Good News: Investors rotated out of growth stocks and into value/cyclical/small-cap stocks marking all time highs.
The Bad News
Standing against the cause of Joe Biden in stock markets is a whole lot of trouble: the coronavirus, its attendant hardships, and high corporate valuations. Add to that his vows to dismantle President Trump’s policies that helped keep markets aloft.
In a Biden presidency the stock market is going to be walking on eggshells waiting for him to drop the tax bomb at some point. That is a recipe for short-term disaster.
This issue has given Bulls pause when it comes to Mr. Biden. For months they we have been trying to determine how seriously to take his frequent bashing of President Trump’s love of the financial markets which coincided with a 55%+ rise in the S&P 500 and the 4th-best return for a 1st-term President
Some of his statement have been very ominous, Vs a worldview dictated by stock prices.
“Where I come from people don’t live off of the stock market,” he said in the last debate.
Criticizing President Trump’s championing of the DJIA, he said: “That the stock market is booming is his only measure of what’s happening.”
While it’s possible to write off the bluster as sloganeering, pressure exists in the Democratic party to translate it into action, particularly when it comes to tax policy.
According to progressive socialist Kamala Harris, a Biden administration would on “day one” take aim at the 2017 Tax Cuts and Jobs Act, The Trump Administration’s super gift to investors.
Whatever its social merits, the tax cut mattered for markets.
A year after it was enacted, profits for S&P 500 companies surged more than 20% in 3 Quarters running, a rate not seen since the financial crisis ended in Y 2009, as earnings in aggregate for large public companies rose to a record.
Wall Street sees several scenarios in which Mr. Biden’s pledge to roll back the tax cuts dies on the vine, particularly if Congress remains split, some worst-case models see its enactment cutting S&P 500 profit growth by close to 50% in Y 2021.
For his part, alongside pledging to raise the corporate tax rate to 28% from 21%, Mr. Biden has called for a higher minimum wage. His tax plan also includes raising long-term capital gains tax rates for high earners.
To date the stock market has ignored him.
The S&P 500 surged 7.3% last wk, the tech-heavy NAS Comp spiked 9.4%, the most since April. In a 4-day frame including election night, the S&P 500 rose more than 1% each day, a streak that only happened 3X in history.
Valuations are a poor tool for market timing, they are a consideration in expected returns, meaning Mr. Biden if elected faces an uphill battle keeping stocks aloft no matter what he does.
That being the case, this is not the time to change America’s leader.
Monday, the US benchmark indexes finished at: DJIA +834.57 at 29157.91, NAS Comp -181.45 to 11713.71, S&P 500 +41.06 at 3550.64
Volume: Trade on the NYSE came in heavy at 1.7-B/shares exchanged.
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bullish with a Very Bullish bias.
- NAS Comp+30.6% YTD
- S&P 500 +9.9% YTD
- DJIA +2.2% YTD
- Russell 2000 +2.2% YTD
Looking Ahead: Investors will receive the JOLTS – Job Openings report Tuesday.
Have a healthy day, Keep the Faith!
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