In 2016 the contrary -- a Trump presidential win and a roaring advance in the U.S. stock market -- confounded the "talking heads" (including me!).
In 2020 the contrary -- a Biden presidential win (and possible Congressional sweep) could deliver an anticipatory market advance -- may also confound many.
The fact is that the odds in betting parlors and in polls (in which the incumbent's past successes in Wisconsin, Michigan and Pennsylvania now appear likely reversed) are clearly indicating the growing likelihood of a Democratic presidential win in November.
From my perch a more convincing Biden win (and possible Congressional sweep) is now my baseline expectation. This, to me, is market friendly and let me explain.
The worst outcome for the markets would have been a close and litigated election in which the outcome would be uncertain for days, weeks or even months. In this case there could be civil unrest and the markets would not only suffer but the market would likely also grow more volatile. Much needed fiscal relief would be placed on the back burner.
A middle of the road outcome for equities would have been a Biden win and the Republicans regaining control of the Senate. A large fiscal package would likely be somewhat diluted in this scenario.
Before one objects to my interpretation let me explain.
As I discussed in yesterday's column, "And The Winners Are..." the government (and by that I mean both the Congress and the White House) has failed our small businesses which have been gutted by Covid-19. As Jim Cramer said, "they failed us," the big ones won (Amazon (AMZN) , Target (TGT) , Costco (COST) , Walmart (WMT) , etc.) and it is growing almost too late for fiscal stimulus that could provide the necessary help to Main Street:
So, most importantly, a Biden win and Democratic sweep of the Congress would hasten the imperative and passage of a massive fiscal stimulus program (that is now being "discussed" between the two parties) -- probably as soon as February, 2021.
I recognize my view is a contrary one. Most think, as my friend Peter Boockvar wrote to me (in an email exchange between us this morning), "that people will shoot first and ask questions later on tax policy. Everyone will want to pay the 2020 cap gains tax rate and worry about hike in corporate taxes. If 2021 doesn't bring that, stocks will rebound but we know the money management industry is very sensitive and emotional to anything happening in November and December."
Peter might be correct in a normal year but perhaps not in a year in which unemployment is so elevated and in which a large number of small businesses have been gutted and are in desperate need of a financial lifeline.
Moreover, if you look closely and analyze Vice President Biden's tax plan -- it appears quite thoughtful.
But there are other factors that argue in favor of a "Biden Bump" and continued market advance. Specifically:
- We are ever closer to a vaccine and therapeutics than we have been at any point in 2020. I said in March (one of the reasons I grew very optimistic on stocks) was that I have a strong belief in our health and scientific communities. (See the Regeneron (REGN) news from last evening.) I still do.
- We are also approaching normal seasonal strength in equities.
- The Federal Reserve will not change course. Our central bank has been committed, like never before, to fuel domestic economic growth.
- If the market gets moving (higher) in the month or two ahead, a changed and embedded market structure (passive investors that chase strength) could exacerbate the short term recovery in stock prices.
While I have expressed and continue to be concerned with intermediate-term issues that could serve as market headwinds in 2021 (a disappointing economic and profit outlook relative to consensus, the rapid accumulation of private and public debt, the specter of rising inflation, the lack of global cooperation and coordination - and its impact on world trade, elevated valuations, the likely diminished impact of monetary policy - the Fed is "pushing on a string", the need for higher corporate tax rates to help fund the exponential growth in national debt, etc. - much needed (large) fiscal stimulus pushed by Democratic Party initiatives, likely vaccine and therapeutic advancements and seasonal strength in equities (within the context of unprecedented easy money) are the ingredients of a possible "Biden Bump" in the months ahead.
And, a changed market structure (dominated by passive products and strategies that worship at the altar of price momentum) - in which "buyers live higher (and sellers live lower)" may be the cherry on top of a fourth quarter market advance.
In summary, I would not view what appears to be an increasingly likely Democratic victory as a reason to sell stocks. Indeed, consider this contrary... that a possible Biden Bump (higher) in equities lies ahead.
(This commentary originally appeared on Real Money Pro on September 30. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)