Presidential elections have always had a big impact on stocks, particularly when the result marks a shift in administration between Republicans and Democrats. When Donald Trump defeated Hillary Clinton in 2016, for example, the US stock market was plagued with uncertainty, prompting a ripple effect that saw stock markets around the globe plummet.
In the case of the latest election, the results were arguably just as impactful. In the run up to election day, the stock market was volatile, seeing some significant losses across sectors. The fact that the outcome of the election was contested only extended this period of uncertainty for investors, as Donald Trump threatened various forms of legal action against his rival.
However, share prices rallied across the globe as Joe Biden was officially declared victorious. In the immediate aftermath of the results, the FTSE 100 rose by 1.5%, with similar gains seen across Europe. Meanwhile, Japan’s Nikkei 225 climbed 2.1% to its highest level since 1991. Similarly, the Dow Jones industrial average, the S&P 500 and the Nasdaq posted significant gains, ending the day with the Dow up 1.3%, the S&P up 2.2% and the Nasdaq up 3.8%. This trend has continued into 2021, with the S&P 500 index alone climbing 14.3% since election day.
The 2020 presidential election marked only the fourth time in a century that an incumbent president has failed when seeking re-election. This, along with many factors related to Trump’s decisions while in office, appeared to foster enthusiasm in New York that would later prove infectious. As Joe Biden entered the White House on 20th January, final figures revealed that stocks gained 13% since election day. This figure marked the best post-election market performance for a new president in modern history, according to CFRA Research. In fact, the second-biggest surge – experienced following the election of John F. Kennedy, only achieved a meager increase of 8.8%.
While the impact of election day on the stock market is always analysed by investors, as a British expat living abroad you’re likely to be more concerned with the ongoing effect the election results will have on global stocks.
While Joe Biden’s win is expected to send ripples through the global market for some time, the effect of the president’s ongoing changes to public policy is expected to be limited to specific industries that were highlighted in his manifesto. According to the U.S. Bank, there are a number of areas that should be monitored over the coming months, including:
Secular growth sectors: Industries within this area are expected to benefit from long-term growth and so warrant close attention as the Biden presidency progresses. Key sectors include information technology, e-commerce and healthcare.
Cyclical stocks: Sectors such as infrastructure, energy and finance are beginning to draw increased interest as investors predict an upturn in the economy as a result of Biden’s win.
Mid- and small-cap stocks: Mid-cap and small-cap stocks are expected to thrive as investors seek to take bigger risks. This follows a year dominated by large-cap investments, which provided investors with more stability in an uncertain economy.
Digging deeper into the statistics, it’s clear that there are a number of specific industries that could benefit from the new administration. Within the energy sector, for example, the solar energy industry is expected to be a highlight during Biden’s time in the White House. The president has previously stated his intentions to counter many of the decisions made by his predecessor by signing executive orders on climate change and electric vehicles. In fact, nine of the 17 executive orders already signed by Biden were reversals of Donald Trump’s policies, which included rejoining the Paris Climate Agreement. President Biden has also promised to reduce US net emissions of greenhouse gases to zero by 2050. These early decisions are expected to boost investment in solar energy, which has been highlighted by Biden as a key factor in his ongoing plans for reform.
Similar trends have been seen within the pharmaceutical companies as a result of Biden’s win. Responding to the Covid-19 pandemic, the president has previously stated that he plans to vaccinate more than 100 million Americans during his first days in office. Not only has he boosted investment across the pharmaceutical sectors as a whole, but he has also had an impact on a number of leading firms. One company that is expected to benefit greatly from this is vaccine producer Moderna. Other companies, such as Pfizer, are also set to enjoy a significant boost in investment as the rollout continues.
Aside from Moderna and Pfizer, many other individual stocks have already benefited from Biden’s win. One such success story is Tilray. As with many other heavily traded names in the cannabis sector, Tilray’s stock value has soared as a result of the election, with a share price that rose from just over $6 to more than $10 within hours of Biden’s win. This was later followed by a mid-January surge of 22%. While the company has clearly cemented itself as a leader in the industry, it’s speculation surrounding the industry as a whole that’s fueling the surge. Specifically, the arrival of Joe Biden in the White House has led many to suggest that cannabis could be legalised in the United States, following Biden’s previous statement that he would seek to reform cannabis legislation should he be elected. As Congress prepares to take on a number of key cannabis issues in the coming months, the shares look likely to continue their upturn.
Another individual stock that has surged since the election of Biden into office is Caterpillar, one of many infrastructure companies seeking to capitalise on the new president’s emphasis on infrastructure spending. Joe Biden has previously stated that he intends to direct spending to areas such as roads, schools and hospitals – a move that has already boosted investment across the industry. Caterpillar is one of the world’s leading producers of construction equipment, making them a prime candidate for success under Biden’s leadership and a key target for expat investors around the world. The firm has already lifted itself out of a three-year trading range within the past 12 months, but on the back of the election results it has also paid a healthy 2.1% dividend yield.
Looking towards the future
As with any politically-fuelled surge in the stock market, the proof of the pudding will be in the eating. While a number of sectors are seeing short-term growth based on early presidential decisions, much of the stock impact is based on speculation. As a result, it’s likely that it will take some time for the long-term impact of Joe Biden’s administration to become apparent. In the meantime, global investors are expected to seek out leading companies related to sectors already positively targeted by Biden’s reforms, some of which are already firmly in motion. As British expats seeking a better quality of life abroad, it’s these areas that are worth your close attention in the coming months.