What impact will Biden’s inauguration have on stock markets?

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Stock markets around the world rallied after the announcement that Joe Biden had won the US election last November. Now many are wondering if Biden’s upcoming inauguration could have the same effect on stock markets.

How have markets generally reacted to new US presidents?

Overall, markets generally reacted positively to the inauguration of new US presidents. In four of the last six presidential changes, the S&P500 (a stock index representing some of the biggest and best companies in the United States) posted gains in the period between Election Day and the inauguration.

The index also recorded gains in the first 100 days of eight of the last ten presidential terms. Needless to say, it might not be entirely due to the inauguration as many factors can affect the market.

How is Biden’s inauguration different?

A change of power in the highest position in the country is always a delicate matter, and even more so when a new political party takes power.

A new administration means new policies that are sure to have an effect on different sectors of the economy. Not to mention that this time around there are the added complications of a global crisis pandemic.

But even with all of that, there are reasons for investors to be confident about Biden’s inauguration.

Matthew Leibowitz, CEO of the digital brokerage platform betseems to share this point of view by specifying that:

“Obviously, there are always a multitude of external factors involved, especially during this strange period that we find ourselves in now, but if you compare the behavior of the market in this presidential transition to the previous six – dating back to the first term of Reagan in 1981, then the Biden Bounce seems to be in full swing.Since Election Day in November, the S&P 500 has risen about 12.6% and continues to rise – more than the previous six transition periods and about the double the increase we saw in the run-up to Trump’s inauguration four years ago.

Why might markets rally after Biden’s inauguration?

First, the inauguration will bring stability and perhaps end a period of uncertainty after a hotly contested election. This will boost investor confidence in the future prospects of the economy and could drive markets higher.

Investors also appear to be hopeful about Biden’s new policies. This could set the market up for a nice little bull run. For example:

  • Biden is expected to push for fiscal stimulus. The Federal Reserve should also continue to provide strong support to the markets at the start of the new presidency. Both could boost investor confidence.
  • Biden appears ready to take a new multilateral approach to foreign trade policy. This could mean improved trade relations with other countries.
  • On Covid-19, Biden appears to favor a more hands-on approach to dealing with the virus. Some say he has been more open about the measures he plans to put in place in his first days as president. His projects include:
    • faster vaccine delivery
    • a more detailed and safer roadmap for reopening schools
    • asking all Americans to wear face coverings for the first 100 days of his term to stop the spread of the virus

Could this be the right time to invest?

There are plenty of reasons to be optimistic about stock markets after Biden’s inauguration. But savvy investors know not to base their investment strategy on headlines or trending events.

Pay too much attention to it and you’ll miss the big picture, which is that on a long-term horizon, the stock market has an upward bias. And some things, like a change of president, don’t really matter.

So rather than trying to time the market, which involves a lot of guesswork, the best approach is to develop a long-term investment strategy this is based on your preferences and abilities.

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