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Biden heads into inauguration with a stock market tailwind

U.S. President-elect Joe Biden speaks as he announces members of economics and jobs team at his transition headquarters in Wilmington, Delaware, January 8, 2021.

Kevin Lamarque | Reuters

President-elect Joe Biden moves into the White House in the coming week with the biggest stock market tailwind since a presidential Election Day going back to at least 1952.

According to CFRA data that begins that year, the near 13% gain since Nov. 3 would be the biggest increase in the S&P 500 between the election and inauguration if the gains hold. President John F. Kennedy’s 8.8% gain had been the best, followed by President Dwight Eisenhower, with 6.3%, and President Donald Trump, with 6.2%.

Biden’s promise of the $1.9 trillion relief package he announced Thursday is one of the reasons for the stock market’s surge, and it will be a big focus of markets in the week ahead as investors handicap its chances of winning congressional approval.

The Martin Luther King Jr. Day holiday starts off the week, and over the next four days several dozen S&P 500 companies report earnings. Bank of America, Goldman Sachs, IBM, Intel and Procter & Gamble are among the companies reporting.

Biden will have no honeymoon

The $1.9 trillion stimulus package is at the top of the agenda. But there is also significant focus on whether his administration will be better at controlling the pandemic and rolling out the vaccine, as he has promised.

“This is the number he came in at. Where do negotiations go from here?” Quincy Krosby, chief market strategist at Prudential Financial, said of the $1.9 trillion package. She pointed to worries about a weakening economy, evident in December’s retail sales data, down a surprising 0.7%, and weekly jobless claims, at the worst level since August.

“You could argue this is Covid-related and therefore what is most important going forward is to see the logistics of the vaccines, inoculations gain orderly momentum. That is crucial for the market,” she said.

Krosby said the market is focused on the inauguration.

“They want to see it go smoothly, and that there’s not any security lapse. The market absorbed the events of Jan. 6. The market looked ahead and figured out that at this point it was a one-off, and the market ended higher on Jan. 6,” she said. “But always the market becomes much more defensive if what we considered an isolated event suddenly broadens out.”

There will be heightened security surrounding the inauguration after a mob of Trump supporters assaulted the Capitol while Congress was in the process of confirming the Electoral College vote. The House last week voted to impeach Trump for inciting the mob, and now there is concern about further incidents in Washington or at state capitals.

Stimulus and stocks

Markets are also watching carefully to see whether Biden can bridge some of the deep divide between Republicans and Democrats, who now hold a thin majority in Congress.

“We’re getting stimulus, and now the question is ‘OK, you’re supposed to be this great compromiser,'” said Sam Stovall, chief investment strategist at CFRA.

Political strategists expect Biden will get his stimulus package but it will be trimmed down. Ed Mills, Washington policy analyst at Raymond James, said the package could be cut to about $1 trillion based on the size previously discussed by House Speaker Nancy Pelosi and outgoing Treasury Secretary Steven Mnuchin.

“Does Congress want to have a bipartisan show of support after what has been an extraordinarily tenuous beginning of this year, to put it mildly?” Mills said. He said the stock market should continue to do well because it is going to get stimulus spending.

“D.C. is going to be there with more spending, or consumers are going to be there with more spending if they have the ability to get to a post-vaccine world sooner,” he said.

Stovall said that if history is a guide, the stock market should do well with Biden. The average gain of the S&P 500 in the first 100 days for Democratic presidents is 3.5%, going back to 1952. For Republicans in the same period, it’s been an average 0.5%.

The S&P 500 has also gained an average 11.3% in the first year of a Democratic president, but just 5.7% for Republicans, going back to World War II.

The stock market will continue to monitor the bond market, after the 10-year Treasury yield reached a high of 1.18% this past week, the highest since March. It since slid back to about 1.08% Friday after the weak data.

“Other things are going on in the back room. Bond yields have moved up of late, and it was a change. It gave you a sense of how fast rates can move,” said James Paulsen, chief investment strategist at Leuthold Group. “It might be a preview of what you can expect this year.”

Week ahead calendar

Monday

Martin Luther King Jr. Day

Markets closed

Tuesday

Earnings: Bank of America, Goldman Sachs, Netflix, Charles Schwab, Comerica, Halliburton, State Street, Interactive Brokers, J.B. Hunt, Zions Bancorp, FNB

8:30 a.m. Business leaders survey

4:00 p.m. TIC data

Wednesday

Inauguration Day

Earnings: Procter & Gamble, U.S. Bancorp, Citizens Financial, Bank of NY Mellon, Fastenal, United Airlines, Alcoa, Discover Financial

10:00 a.m. NAHB survey

Thursday

Earnings: Intel, IBM, Travelers, Baker Hughes, CSX, PPG Industries, Intuitive Surgical, Northern Trust, Union Pacific, Truist Financial, Fifth Third, KeyCorp

8:30 a.m. Initial claims

8:30 a.m. Housing starts

8:30 a.m. Philadelphia Fed manufacturing

Friday

Earnings: Regions Financial, Schlumberger, Ally Financial, Huntington Bancshares, Kansas City Southern

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI

10:00 a.m. Existing home sales

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