Investors learned to ignore Donald Trump’s erratic tweets over the last four years and focus on deregulation and tax cuts. And now that his presidency is coming to an end, Wall Street appears to be putting on blinders yet again and brushing off the president’s flailing attempts to cast doubt on the election outcome and stay in power.
The market was good with Trump entering the White House four years ago. It’s good with him leaving it four years later, too.
For years, Trump has taken credit for the stock market’s performance — at least when it’s up. In the lead-up to the 2020 election, he consistently claimed that if he were to lose, stocks would plunge. “If I don’t win, you’re going to see a crash like you’ve never seen before,” he told business leaders in February. Vote for him, he said, or 401(k)s were “down the tubes,” would “disintegrate and disappear,” could be kissed goodbye.
But this week has been a decent one for 401(k)s. Stocks were up Wednesday and Thursday as a Biden victory grew nearer. They dipped slightly Friday, but indexes were mainly flat as investors also digested the October jobs report and the ongoing global pandemic. Wall Street is on track for its best week since April.
It turns out the market is impossible to predict — even for the president of the United States.
By and large, Wall Street’s reaction — or, rather, lack thereof — to the 2020 US election has been pretty positive, with markets nowhere near tanking. President-elect Joe Biden is set to be installed in the White House, an outcome that has been relatively clear since Wednesday morning. Democrats have kept the House of Representatives, but it seems pretty unlikely they’ll take the Senate, unless they win two Georgia runoff races in January.
Liberal voters seem quite upset Sen. Mitch McConnell is likely to retain power; investors seem to have no such qualms. Sure, they’ll miss out on a big stimulus package or an infrastructure bill a blue wave could have brought with it. But a Joe-Mitch combo also means higher taxes aren’t coming, the trade situation might be easier, and no more wild tweets from the Oval Office.
“Can you imagine not having to check your tweet file in the morning to see how your stocks are doing?” CNBC’s Jim Cramer said on Squawk on the Street of a potential Biden win on Thursday. “Washington is going to be so boring. The most exciting thing that’ll happen is they’ll finally come up with a name for the Washington [Football] Team. They are going to be so not a part of our existence. It’s joyous.”
Wall Street was worried about a contested result, but it didn’t turn out to be so bad
Ahead of the election, Wall Street insiders’ biggest concern wasn’t really a Trump win or a Biden win. They even got excited about a potential blue wave. The real concern was Election-Day chaos and a contested result where there was no clear answer.
“We’re kind of preparing for Armageddon on November 3,” one senior vice president at a major quant firm, who asked for anonymity in order to speak freely about the matter, told Vox ahead of the election.
On Thursday, as votes in multiple states continued to be counted and the president baselessly claimed victory and election fraud, I checked in with the same person. Their take now: “I think the general feeling is the uncertainty is annoying, but if the crazy thing was going to happen, it would have happened. So back to business as usual.”
By and large, Trump is just shouting into the void as most voters, the media, lawmakers, and, yes, Wall Street go about their lives.
“People came in prepared for it to be kind of rough. There hasn’t been any widespread, worrying unrest,” said Dan Egan, managing director of behavioral finance and investment at Betterment. “There’s no catch-fire point or really big thing for anybody to worry about. The slow trickle is good in that it doesn’t allow anybody to get too worried about one specific data point.”
None of this is to say that things couldn’t change. Trump and the Republican Party have started to file lawsuits in multiple states trying to stop vote-counting, challenge results, or otherwise meddle in the process, though it’s not clear their legal strategy will be particularly successful. The same goes for the president’s Twitter strategy as he continues to tweet away, making false claims about fraud and the election being stolen. Thus far, much of the country just isn’t that unsettled by this, nor are the markets — even though, undoubtedly, the idea of a president who refuses to concede an election is disturbing.
Joe Biden is not Elizabeth Warren
“Remember all the talk about a financial transactions tax, an Elizabeth Warren-driven crackdown on private equity, and even the possibility of breaking up the big banks?” wrote Ian Katz, director at Capital Alpha Partners, in a note on Wednesday. “We were very skeptical of any of that happening even if Democrats had won the Senate. Now you can just take it completely off the table.”
Presidents generally don’t have that big of an impact on markets in the first place — plenty of things move certain instruments, sectors, and stocks all the time. Sometimes there’s no clear explanation for what’s going on at all. Generally, Trump has been pretty favorable to markets because of tax cuts and a deregulatory bent. A Biden presidency will certainly be different from Trump, but it doesn’t at all spell doom for Wall Street.
Josh Barro, a business columnist at New York magazine, offered up a pretty compelling explanation of the market’s reaction to the election in anticipation of Biden in the White House with McConnell still in control of the Senate. The scenario is basically a steadier one: eased trade tensions with China, the tax landscape without significant change, and a guy in the Oval Office who isn’t so trigger happy on social media. Senate Republicans are also probably going to be pretty choosy about who they confirm as Biden’s Cabinet nominees, meaning no Warren for Treasury or Katie Porter for head of the Consumer Financial Protection Bureau or Bernie Sanders for Labor.
“Investors who wanted Trump to go but wanted some of his policies to stay will have their cake and eat it, too,” Barro wrote.
Despite his working-class roots, Biden was Wall Street’s preferred candidate in the 2020 primary, especially compared to Warren or Sanders. And the investor class wasn’t exactly Biden-averse in the general election — there were plenty of Wall Street names on the list of fundraisers his campaign released days before the election.
Leon Cooperman, a billionaire hedge funder who issued dire warnings about a potential Warren presidency during the 2020 primary and at one point was brought to tears on television about the thought of her in the White House, wound up voting for Biden. “I voted my values and not my pocketbook,” he told CNBC on Wednesday. He said he believes Trump is an “interventionist” and not a capitalist in his attempts to influence the economy — trying to talk the price of oil up and down, leaning on the chairman of the Federal Reserve to make decisions in his favor. “At the end of the day, I made a personal decision that I would rely upon 337 members of Congress and 100 US Senators to decide whether the country will remain capitalistic in its orientation or go socialist,” he said.
What is fine for Wall Street is not always fine for everyone else
On Wednesday, the day after the election, shares of Uber and Lyft soared after California voters passed Proposition 22, which exempts companies that rely on gig workers from having to classify them as employees instead of independent contractors. It’s a win for Uber and Lyft and their shareholders — Uber’s CEO has said they’re going to advocate for more things like it. It’s a loss for Uber and Lyft drivers hoping for benefits and protections.
There are certainly things about the upcoming political landscape that are going to be good for both Wall Street and for ordinary people. A key element of the economy improving is getting the Covid-19 pandemic under control, and there’s little doubt Biden will do more to try to combat the pandemic than Trump will. At the very least, Biden will not actively spread it, and at some point, a vaccine will likely arrive.
The economy is getting better slowly, but there are still a lot of unknowns. The October jobs report pegged the unemployment rate at 6.9 percent and was generally positive; however, 10 million jobs remain lost from before the pandemic, and the recovery is slowing. It’s also happening unequally: People at the top are doing much better than those at the bottom. The Black unemployment rate is still in double digits.
In recent months, Wall Street appeared to have been banking on further stimulus from the federal government to follow up the CARES Act, the $2.2 trillion stimulus President Trump signed into law in late March. Election Day came and went without legislation, and it’s not clear if or when a follow-up will come. At the very least, any package is likely to be much smaller than it could have been had there been a Democratic sweep.
The markets seem to, at least for now, be okay with the idea of a smaller stimulus. Plus, Federal Reserve Chair Jay Powell has taken enormous steps to help support the markets and seems poised to do whatever it takes going forward. For people who lost their jobs or state and local governments facing disastrous budgets or small businesses struggling to stay afloat, further aid is much more vital. A sweeping stimulus package would have made a real difference, and it’s not coming.
“Without additional relief, we really will see a longer, slower, more painful recovery, and one that will disproportionately inflict deep harm on communities of color,” Angela Hanks, deputy executive director of the progressive group Groundwork Collaborative, recently told Vox.
The road ahead for the economy — and for the markets — is anything but sure. Covid-19 cases are skyrocketing in the US, and the situation is likely to get worse, not better, before Biden takes office. Trump’s shenanigans to undermine the results of the election could last for months. The economy could backslide. The country could still see election-related unrest. And the markets move for a ton of different reasons day to day and hour to hour.
Trump has tethered much of his presidency to the stock market, not only in pointing to it as a measure of success but also considering it in his political and policy decisions. His administration reportedly downplayed the pandemic in order to avoid spooking the stock market. He has consistently tried to shape economic and policy choices so as to keep markets riding high.
As the saying goes, if you need a friend on Wall Street, get a dog. Or at the very least, don’t look to Dow.