Investors: make the most of the “Biden Bounce”, but do it cautiously
As Joe Biden’s presidential inauguration looms, investors should ride the “Biden bounce” in the markets this week.
But they must do it prudently.
As president-elect Biden readies to becomes the 46th president of the United States on Wednesday, we’ve seen the best stock market performance between the election and the inauguration for any president for at least 50 years.
History has taught us that we can expect the market to have a favourable reaction to the inauguration of a new president, and this week is set to be no different.
Indeed, Joe Biden gaining the keys to the White House could lead markets into a sharper bull run than past inaugurations on the hope of heightened stability with the new administration, and a halt to the election-fuelled uncertainty.
Furthermore, investors will also be lifted by Biden’s $1.9 trillion fiscal stimulus, the willingness by the Fed to bolster markets, the new president’s multilateral trade agenda as well as his plans for the rollout of the Covid vaccine.
All of these measures will boost confidence and optimism.
As such, investors should indeed ride the “Biden bounce” this week in the markets, but do it cautiously for three reasons.
First, a market rally will be tough to sustain indefinitely due to the massive economic hit stemming from the coronavirus crisis.
The principal long-term headwind is mass unemployment, which is impacting demand, growth and investment on Main Street and which, eventually, will have to influence Wall Street.
Second, the Biden administration will introduce new policies that will impact different sectors of the economy. As such, a period of readjustment will need to be factored in.
And the third reason is that not all shares are created equal and stock markets are currently severely unbalanced. A mere handful of sectors are bringing up entire indexes.
Therefore, an experienced fund manager can guide investors to seek those most likely to create and grow their wealth over the longer-term.
Indeed, investing in the stock markets over the long-term is one of the best and proven methods to accumulate wealth.
That said, it’s crucial that investors avoid complacency when confidence grips the markets.
If too much focus is on the headlines, the bigger picture could become unclear.