Fate of stock market depends on smooth election, stimulus spending

GUILDERLAND — Who is going to be better for the stock market? Donald Trump or Joseph Biden?

Money managers and market analysts are confident that the stock market has already factored in a Biden win and that the real concern is that there will be a contested election.

But if either Biden or Trump wins decisively, the markets should do OK — at least through 2021 and the Covid-19 pandemic, experts say.

Matt Reiner, co-portfolio manager of the Adirondack Small Cap Fund in Guilderland, sees potential advantages if either candidate wins, calling it a “Goldilocks,” or satisfying scenario, at least to traders and the market.

He says if Biden wins amid a “blue wave” of Democratic wins in Congress, it’s expected that a new Covid-19 stimulus package would be passed quickly, along with the massive infrastructure package that Biden is proposing, which would mean lots of new spending that would inject liquidity and money into the economy.

“If Trump wins, it’s status quo, which will be good for the stock market as well,” Reiner said.

But such a scenario has not always been the case.

President Donald Trump’s victory in 2016 over Hillary Clinton was very unexpected and caused the market to plummet initially before rebounding.

But the 2020 election is very different. Trump, the incumbent, is trailing former vice president Joe Biden by double digits in the latest NPR/PBS News Hour/Marist poll published on Thursday.

Biden is leading Trump 54 percent to 43 percent among likely voters. It’s the best showing that Biden has had against Trump since polling for the two candidates began in February.

But unlike in 2016, a Biden win shouldn’t make many waves in the stock market, which has been in a growth mode the past six months. Experts like Reiner and others say that a Biden win is already priced into the stock market.

The Dow Jones Industrial Average, a leading market indicator, had been volatile at times amid the Covid-19 pandemic but has risen 21 percent since mid-April, reaching 28,494 points.

That’s close to the all-time high of 29,551 reached back in February before the pandemic began in the United States, and some analysts believe the Dow could reach a record 30,000 by the end of the year.

Hugh Johnson, chief investment officer and founder of Hugh Johnson Advisors in Albany, says the impact of this election on the stock market likely won’t follow typical norms.

“If you think logically, you would expect a Biden win would be bad news for the stock market, and a win by Trump would be good for the stock market,” Johnson said.

But because of the coronavirus pandemic, that’s not the case this election.

That’s because either candidate who wins will be spending most of their time focusing on the pandemic and trying to get the economy up and running again instead of working on their platform policies that they have been pitching to the American public.

“It’s not at all clear that either one of the candidates will be able to implement their plan,” Johnson said.

In general, Biden wants to repeal Trump’s 2017 tax cut package and increase taxes on the wealthy and corporations while giving extra tax breaks to middle- and low-income individuals.

Trump has said he would cut taxes for the middle class.

But all bets are off once the Covid-19 crisis is over, perhaps when there is a vaccine and other remedies are approved by the federal government for the public.

Johnson said experts believe things will calm down in 2022. But at that time, the president and Congress will be facing a new fiscal challenge after having spent hundreds of billions of dollars in coronavirus stimulus funds on the public, businesses and local and state governments.

“The level of deficits and the level of debt that are being built will invite any policy maker to reduce those deficits and that debt,” Johnson said. “And that will really mean raising taxes and reducing federal spending.”

And in general, the stock markets do not like either of those measures.

“It’s not good news,” Johnson said. “But I don’t think they are going to do that now. Don’t look for much in the way of fiscal restraint in 2021. It’s not going to happen.”

But in two years, if the country has finally put the pandemic behind it, all bets are off.

“There will be a time to worry about that (in 2022),” Johnson added.

Of course, there are some risks to the stock market that come when the election doesn’t come out as expected.

“The stock market responds to the unexpected,” said Jeff Coons, chief risk officer of High Probability Advisors, a unit of The Bonadio Group, which has an office in Albany. “When something unexpected happens, that’s when you really see volatility.”

That happened in 2016 when Trump defied expectations and won over Hillary Clinton, although the market quickly corrected itself.

Since a Biden win is already priced into the market, it’s not really expected that the market would swoon if either candidate wins, especially since the stock market has made extraordinary gains under Trump.

In fact, Stephen Carl, CEO of High Probability Advisors, says that the stock market has actually done better under Democrat presidents than Republican presidents. Overall, the market has risen steadily under all presidents over the years.

Reiner, from the Adirondack Small Cap Fund, said that a win by either Biden or Trump would keep the markets moving. But there is one scenario that would be bad.

“The way we see it, there’s only one outcome that would hurt the markets, and that’s a contested election,” Reiner said.

lrulison@timesunion.com

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