2021 Market Predictions — What To Expect Under Biden’s Presidency?

With the US elections behind us, we can now look forward to how the markets might perform following the inauguration of the president-elect, Joe Biden. What changes can we expect in 2021 under the new president, how will the markets respond, or will the status quo persist? Let’s take a look across a variety of different asset classes and what a Biden Presidency could mean for them.

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NASDAQ

Towards the end of the first quarter of 2020, the onset of the coronavirus led to a panic stock market selloff resulting in the S&P 500 index reaching historic lows of 2,191.86.

Since then, the stock market has rebounded with the index currently at all-time highs above 3500. The rebound is mostly attributed to the $2 trillion stimulus package approved by the US Congress and the interest rate cuts by the Federal Reserve to 0% — 0.25%.

Most companies have taken full advantage of the low-interest rates to borrow money to fund share buybacks. Most notably, the board of directors of Apple Inc. approved share buybacks worth $50 billion in the second quarter of 2020. The share buyback policies by listed companies can be said to have contributed to the rebound of the stock market from the lows of March 23, 2020. So, will things change under Biden’s presidency?

Most likely not. The Federal Reserve has categorically said that it has no intentions of hiking the federal funds rate before 2024. It, therefore, means that for the first three years of Biden’s presidency, the markets will be contending with the low-interest rates. So, we can expect the current trend to prevail.

However, Biden vowed that his presidency would focus on combating climate change. We can expect that infrastructure and solar stocks will see renewed interest among investors. The Biden presidency is expected to prioritise investments into alternative energy sources. Furthermore, investors expect that there will be a renewed push for the passing of the infrastructure spending bill, which will shine a spotlight on building supplies manufacturers.

Still, in the near future, unless there is a cure or a vaccine for COVID-19, we can expect that social distancing and lockdowns will continue to be the norm. Consequently, we can expect that tech stocks, which thrived during the pandemic, to continue being bullish during Biden’s presidency.

Oil

When the US oil futures reached -$37.63 on April 20, 2020, we saw President Trump promising a bail-out for US shale companies.

The Biden presidency is expected to shift focus from oil to alternative energy sources since combating climate change is one of his key policies. Although this doesn’t spell good tidings for the oil industry, we shouldn’t expect the status quo to change by much. So far, oil is considered the cheapest source of energy in the US. The US Energy Information Administration (EIA) categorises transportation and industries as the top consumers of oil in the US with 68% and 26% respectively. Gasoline is the most consumed oil product in the US averaging 391 million gallons per day which is about 45% of the total petroleum consumption in the US.

As president, Biden has vowed to end oil fracking in the US and adopt the Green New Deal aimed at achieving net-zero greenhouse emissions by 2050. Keeping in mind that the largest consumers of oil in the US is the transportation sector, we shouldn’t expect much to change unless there is a sudden availability of cheaper mass alternatives to gasoline.

Heading into the Biden presidency, we can expect that oil demand will be majorly impacted by the status of the ongoing coronavirus pandemic. We have largely noticed that oil demand has been impacted by the lockdowns and the social distancing rules.

The USD

In the forex market, the value of USD under the Trump presidency has been impacted by trade wars with the EU and China. The USD had weakened against the EUR from 2017 when Trump took office.

The Federal Reserve was always under constant pressure from Trump to lower interest rates to encourage economic growth. While this was viewed as a blatant attempt to weaken the dollar, he seemingly achieved this through a barrage of tweets touting the USD as being too strong and hurting US exporters.

Remember that the forex market is heavily driven by sentiment. For forex traders, Trump’s stance that the USD is too strong seemed to have worked as the USD weakened about 13.4% against the Euro from January 2017 to November 2020.

Going into Biden’s presidency, we can anticipate that the USD will gain some ground in the forex market. Most investors expect that President Biden will deescalate the trade wars initiated by his predecessor and adopt a more diplomatic route towards solving trade disputes with the EU and China. Furthermore, we expect that the Federal Reserve will be left to pursue its monetary policy mandate independently.

Cryptocurrencies Under President Biden

The US Treasury Secretary Steve Mnuchin echoed Trump’s anti-cryptocurrency sentiments at a press conference on July 15, 2020. The main concern was the rampant usage of crypto for illicit purposes. In June 2019, congresswoman Maxine Waters — Democratic head of the house committee on financial services — wrote a letter to Facebook to cease any implementation plans for its pending digital currency Libra. The main concern is that there are no regulatory frameworks for the usage of the crypto, which would pose a severe risk to privacy, national security and monetary policies.

Whether the Biden presidency will be good or bad for the crypto industry is anyone’s guess. Personally, Biden hasn’t taken any specific stance on cryptocurrencies or DeFi. On July 22, 2020, the US Office of the Comptroller of the Currency (OCC) authorised US banks to provide custodial services to crypto holders. This authorisation can be seen as the first step towards mainstream recognition and acceptance of cryptocurrencies.

Conclusion

We can expect that the coronavirus will broadly impact the markets under Biden as president. As it would with whoever was in the hot seat. However, we can expect that the markets will react to specific Biden policies surrounding climate change and his foreign policy agenda on ending trade wars.

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