It would seem that the best outcome from this election for large corporations and thus markets would have been a decisive Trump victory since Republicans tend to be more pro-business than Democrats. Joe Biden, who won the election, has spoken about plans to raise corporate taxes in the midst of a pandemic. His decision to raise corporate taxes brings along uncertainty, which investors fear.
Nonetheless, Biden’s victory did not result in markets plummeting, instead the opposite happened. One major factor that accounts for the market rallying includes quantitative easing, which is when a lot of money is pumped into the system. The stimulus packages due to Covid-19 from the Federal Reserve made it so many people have extra cash. Since interest rates are at an all time low, people would be better off investing in the stock market, even if they can only get a 4%-5% return, than they would be keeping their money in the back, where they’d get a 0% return.
Another reason for this all-time high is that foreign investors are moving their money into the US market since the US system is known to be a safe house during turbulent times.
Additionally, since the start of Covid-19, the US dollar has dropped significantly compared to other currencies. Foreign investors are buying more than they otherwise would be because their currencies are doing better.
Another reason why markets are doing so well is because earlier last week, Pfizer announced that they had developed a vaccine with a 90% effectiveness, much high than they were expecting. This was great news, and an indication that lives may go back to normal soon.
Even though medical experts all over the world have said not to get too excited by this news, since vaccinations have to jump through many hoops to finally get approved for the public, just a glimmer of hope is enough for investors to think that other investors will get into the market, so they get into the market to try and beat those other investors, which eventually makes the markets go up.
However, businesses that stand to gain the most from the vaccine, such as cruise ships, airplanes, and retail businesses, saw their stocks go up but were outperformed by technology stocks. Perhaps this indicates that there is a troubled road to recovery, since stimulus bill talks will not be either party’s priority in the near future because both parties will be too busy talking about the nuances of a broken election.
Most of the companies that were talked about earlier, such as cruise ships and retails businesses, are relying heavily on the stimulus package. If the government fails to pass one, many of these businesses will go bankrupt.
The election provided investors with a lot of certainty when a mixed government was elected. After January 20th, the presidency and the house will be controlled by the Democrats, and the senate will likely be controlled by Republicans, which means that any laws or budgets that they want to get passed will likely be rejected by the other, or they’ll have to comprise a lot for both parties to approve.
Mixed government is great for investors because Biden’s proposed tax plan will most likely not make it through the Republican majority senate (if that ends up happening, read more here) without many changes. Similarly, any plans to cut welfare spending or lower taxes will not be approved by a Democratic controlled House. This is great for investors because the companies they are investing in will work on the rules that exist in the US now and won’t have to change their strategy because of a change in policy.
The Pfizer vaccine announcement, a mixed government, and foreign investments are all factors as to why the stock market is doing so well right now.
