Has the market already priced in a Joe Biden victory? Or is a correction coming? | Source: REUTERS/Jonathan Ernst
- The stock market has traditionally run parallel to Trump’s election odds.
- That pattern recently came to an end.
- Does the market feel safe with Joe Biden, or are they just distracted by the coronavirus?
Republican policies tend to benefit the U.S. stock market. This has become blatantly obvious during Donald Trump’s tenure in the White House.
Before the pandemic, Mr. Trump presided over one of the most epic bull markets in history— something he’d banked on using to support his case for reelection. But amid the chaos of coronavirus, the stock market stopped caring whether Donald Trump gets reelected.
The Stock Market Has Severed Its Trump Ties
From the moment the democratic primaries began, pundits have been calculating the odds of each candidate defeating Donald Trump. As Trump’s odds of winning increased, so did the stock market. If they fell, the stock market followed suit— until April, when the two started moving in opposite directions.
Over the past few weeks, Donald Trump’s chances of reelection have slowly decreased as polls in battleground states show his popularity starting to wane. But the S&P 500 continued to move higher despite Joe Biden’s advances.
The chances that Republicans are going to lose their stronghold in the Senate have also increased. If Trump loses and the Senate changes hands, the stock market is looking at its worst nightmare: all three branches of government controlled by the Democrats.
Normally, that would evoke a shiver of fear on Wall Street, but so far, it hasn’t even crossed the stock market’s radar. What gives?
No One is Paying Attention
There are a few reasons the market seems apathetic to a Donald Trump election. The first reason is information overload. The stock market has been distracted by coronavirus uncertainty. The upcoming election rarely makes it to the airwaves these days, and that’s kept it from rattling traders.
But if reopening the U.S. economy doesn’t trigger a second wave of coronavirus outbreaks, investors will shift their attention to the election. That could mean a pullback on the horizon if Biden’s lead continues to widen.
Trump Loses His Luster
There’s also a chance that investors are no longer cheering on Donald Trump. While he’s certainly considered a friend to Wall Street, he’s also become somewhat of a wildcard whose mood-swings often cause the market to wobble. Investors remember how Trump’s off-handed Twitter rants took the market on a wild ride last summer during the trade war.
From that perspective, perhaps the market would welcome the addition of “Sleepy Joe,” whose comments are carefully curated. Plus, while a Democrat President isn’t ideal for big business, Biden has always been considered the least progressive of the field. The market may perceive him as less of a threat.
Trump’s Coronavirus Response
There’s another potential reason Wall Street is shedding its MAGA hat— coronavirus. The overwhelming majority of economists and famed investors agree that you can’t fix the economic crisis without resolving the public health crisis.
In reopening the U.S. economy with very little guidance and virtually no back-up plan, Donald Trump is banking on a vaccine come autumn to avoid a disastrous second wave. The evidence so far looks promising , but if none of the potential vaccine candidates pan out, the U.S. could have big problems. A huge second wave of coronavirus cases would be disastrous for the stock market.
The Verdict?
Until economies around the world are confidently reopened, coronavirus cases and vaccine news will likely drive the stock market.
But as investors get more comfortable with the slowing rate of infection, volatility could start creeping into the stock market. Once traders digest the impact of a progressive candidate taking hold of the White House, all bets are off.
Disclaimer: This article represents the author’s opinion and should not be considered investment advice from CCN.com.
