It seems appropriate that such a contentious Presidential election would take place in 2020, a year unlike any other.  On January 20, 2021, Joe Biden will become the 46th President of the United States unless the Trump administration is successful in its efforts to overturn the results.  Many investors are now wondering what a Biden-Harris administration might mean for the economy, and by extension, for financial markets?  A lot will depend upon which party controls the U.S. Senate and that answer is several weeks away.  The consensus opinion is that the market would respond favorably to a divided Congress.

A U.S. President has tremendous power and influence, but he (or she) cannot make law, a responsibility our founders reserved for Congress.  While campaigning, then-candidate Biden pledged, if elected, to reverse the Trump tax cuts, expand the Affordable Care Act (Obama Care), “transition away” from fossil fuels toward “clean energy” and re-join the World Health Organization and Paris Climate Accord among other promises.  He can execute on some of those, but others require aid from both houses of Congress. Therein lies the rub, or opportunity, depending on your political persuasion.

Markets do not like uncertainty and come January 5th, after the Senate run-offs, there will be more clarity in regard to which political party, if either, is in control.  That being said, there is still plenty of uncertainty as it relates to the economy, most of which revolves around the COVID-19 pandemic and responses to it.  Another government-mandated shutdown would be devastating to consumer psyche and the U.S. economy.  Fortunately, there are 11 different vaccines in large scale efficacy testing and Pfizer’s’ recent announcement of its vaccine’s 90% effectiveness may be a harbinger of more good news to come.  Most pundits believe that Congress will eventually create another stimulus package and there may now be a greater chance for an infrastructure deal.  The Federal Reserve announced that it will do its part to keep the U.S. boat afloat by holding short-term interest rates at zero and continuing to buy bonds and mortgages providing much-needed liquidity. Again, more clarity in the making.

To get an idea how any administration might impact financial markets it may be worthwhile to look back over previous administrations.  The accompanying chart shows the stock market’s advance over the past 95 years, segmented by U.S. Presidents.  Democratic leaders are shown in blue bars, Republican in red.  Although the market goes up and down, it does so in an upward long-term trajectory, because that is the trajectory of our economy, propelled forward by growth in population and consumer demand.  As the economy grows, so does the value of those companies that produce goods and services.  Whichever political party was in charge at the time did not permanently alter the path of that wealth creation engine known as the U.S. economy, and by proxy, publicly traded companies.  One key reason is our system of free and fair elections which keeps us from the extremes of anarchy and totalitarianism.  Of course, should the integrity of our election process ever become compromised by an “end justifies the means” mentality, we would then put at risk the very freedoms afforded by that system. 

Long-term, goal-focused investors do not spend too much time and energy worried about things they cannot control.  Instead, they create a plan, execute it, and then tune out the deafening noise and hysteria created by the media who believe their mission on Earth is to create mass hysteria and scare you out of that intelligent plan.  Today’s worries, however genuine, will eventually fade into the rearview mirror and life will, one day, return to normal.  Those who view the future with a glass-half-full attitude will reap the greatest rewards as that happens.