The Biden Bounce is leaping over stock market’s Trump Bump

The Biden Bounce is making the stock market’s Trump Bump look pretty flat. The benchmark S&P 500-stock index rose just over 14% from the election on November 3 to Wednesday’s inauguration. That’s more than double the 6% rise that shares saw four years ago in the same time period — from election to inauguration — for Donald Trump.

Trump during the campaign predicted that the market would crash if Joe Biden was elected. Instead, the opposite has happened. Shares have risen more between election and inauguration for President Biden than any other president going back to Herbert Hoover.

Some of that rise in the market is no doubt a response to the fact that we now have an approved vaccine against the coronavirus. In mid-December, Pfizer received emergency federal approval for its vaccine and began shipping it to hospitals around the country. 

But at least some of the stock bounce is seen as a vote of confidence by Wall Street in Mr. Biden’s leadership and plans. The president has said that he would like to push through another $2 trillion dollars in stimulus from Washington. 

It also creates a risk. The stock market is once again at all-time highs, and shares look expensive by many traditional measures. Stocks now trade at 29 times the value of the last 12 months of company earnings. That’s a level that stocks don’t normally get to unless the economy is booming. And that’s not the case right now. On Thursday, the government announced that another 900,000 individuals filed for unemployment in the U.S. last week.

What goes up …

What’s more, historically a big post-election stock market bounce has not always been a great predictor of presidential success. Just consider Hoover.

Keith Parker, the top U.S. strategist at Swiss bank UBS, told clients in a research note Wednesday that the stock market’s most recent rise appears to be following the new jump in the number of vaccines the U.S. is distributing per day. “Current momentum of accelerating vaccinations points to a further grind higher in equities,” Parker wrote.  “The market prices a potential spending pickup.”

But while the pace of vaccine distribution picks up, it looks likely America will soon hit a point where vaccinations must be paused because of a lack of doses. That would be a risk for the market.

Some on Wall Street are even saying President Biden could soon be dealing with a big market drop on top of the other issues he is facing. “Sentiment and valuations are becoming euphoric,” Bank of America’s top U.S. stock strategist, Savita Subramanian, said in a note to clients earlier this week. “Our sentiment indicator is now closest to the ‘Sell’ signal since the [global financial crisis more than a decade ago].”