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What does a Biden presidency mean for the stock market?

With Joe Biden winning the race to become the 46th president of the US, we look at what a Biden presidency could mean for the stock market.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The cloud of uncertainty hanging over the market lifted slightly over the weekend, with Joe Biden called the winner of key swing states and becoming president-elect.

Barring the success of Donald Trump’s seemingly far-fetched legal challenges, Biden and his running mate Kamala Harris are set to take the oath of office in January.

The overall sentiment washing through markets is one of relief.

Initial market reaction – the Biden Bounce

Financial markets clearly liked what they saw over the weekend.

Stocks in Asia continued an exuberant rally, on hopes a Biden presidency would thaw trade relations. That appears to have spilled over to the FTSE 100, which has seen a post-election bounce this morning.

But any UK gains are likely to be tempered as the focus returns to Brexit, with a trade deal still yet to be agreed.

An incoming Biden administration won’t offer an easy path to a trade deal with the UK. It could even determine the shape of relations between Britain and the EU. Joe Biden has already expressed disapproval of proposals for the UK to potentially break international law on certain aspects of the withdrawal agreement. This is likely to concentrate minds at No.10.

What about the longer term?

While Biden will likely be the next President, it looks likely the Republicans will control the Senate.

For the US economy and stock market, much depends on what kind of stimulus measures are announced to combat the Covid-related downturn.

A stimulus package of some sort is still likely, but economists expect it to be smaller than in a ‘blue wave’ scenario, in which Democrats win the White House and the Senate.

As far as markets are concerned, this could be a reasonably good outcome. A smaller fiscal stimulus (government spending) package would likely require the US central bank to do more of the heavy lifting. This means interest rates staying lower for longer and potentially more quantitative easing – another way of injecting money into the economy. All of this should support markets.

The gridlock created by a Biden presidency and a Republican-led senate could be a longer-term positive for markets too. That’s because it probably means fewer big policy swings on things like tax. This kind of scenario has been good for stock markets in the past, though as always that’s not a guide to future returns. And what’s good for the US market has tended to be good for markets around the globe.

Chart showing stock market returns in different political scenarios since 1945

Past performance isn't a guide to the future. Source: CFRA Research.

For those invested in the US, we think a Biden presidency and the relative stability it should bring is good news. However, a note of caution: large parts of the US market still look expensive on many measures.

Far from being on the back foot, shares in big technology companies have been climbing back up to recent heady heights. Investors are increasingly confident that without control of the senate, it will be much harder for the Democrats to push through legislation aimed at tougher regulation of the tech giants.

The fact that some stocks look expensive doesn’t rule out good performance from here. But we’d encourage investors to make sure they’re well-diversified across different countries, and are comfortable with the level of risk they’re taking. Remember though that investments rise and fall in value, so you could get back less than you invest. This is not personal advice. If you are unsure, please seek advice.

More on diversification

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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