November 2020 a month full of takeaways
It’s now over a week since Joe Biden was declared the winner of the US 2020 elections. The uncertainty leading up to 3rd November was palpable and pervasive and placed a ceiling on significant capital gains. However, the week of the election was superb for risk markets, even as votes were counted. The S&P 500 appreciated 7.3%, the Russell 2000 increased 6.9%, the NASDAQ was up 9% and the Dow Industrials also ended the week 6.9% higher. At the same time the Dollar Index, a proxy for risk, declined 1.9%.
Clearly, the market was relieved to get the election over and done with. Moreover, Biden is the clear winner and legal challenges from President Trump are unlikely to alter this. This is important as it reinforces a sense of stability that there is an obvious leader that will lead the USA forward and play an important role in the global economic recovery.
A Biden win in this climate is well-timed given the announcement last week by Pfizer and BioNTech that their trials show a potential vaccine which is 90% effective in preventing COVID-19. This was boosted further by Moderna’s confirmation of a 94.5% effectiveness for its vaccine in trial data. However, Biden’s leadership here is also important to cement market relief and to date, he has assembled a new and impressive COVID-19 task force, led by three highly qualified co-chairs David Kessler, Vivek Murthy, and Marcella Nunez-Smith. Other members are specialists in their own right and bring a high level of competence to the table.
Markets are forward looking. Therefore, progress in the fight against COVID-19 will be discounted into market prices as participants look for signs of a return to a pre-coronavirus world and economic activity. In this regard, the Federal reserves unlimited QE program is supportive, and will likely be reinforced with expansionary fiscal policy in February. This is important because of the lack of fiscal cohesion into the election was one of the reasons for the ceiling on stock prices. On this note is also worth mentioning that the increase in the corporate tax rate from 21% to 28% will likely be delayed given how badly the economy and corporates were battered in 2020. This too will be seen as market supportive, at least in the medium term.
The Biden presidency will likely keep up the pressure on China but through a different approach. Whilst Trump chose a unilateral stance, Biden will likely choose a multilateral strategy and enlist the help of allies in the trade dispute with China. Moreover, whilst Biden may not be as protectionist as President Trump, the unwinding of Tariffs will likely be used in negotiation. This may introduce a modicum of uncertainty into markets if tensions arise.
An interesting market dynamic may arise as the Biden presidency develops. Democrats have already flagged big tech as being anti-competitive. The prospects for this sector should be considered as it was the big tech companies that led the market off of the March lows. If legislation is passed that will have a detrimental effect on the bottom lines of these companies there may be a rotation of leadership out of the NASDAQ and out of the FAANG stocks in particular. Since the election, we have already seen a short-term rotation with capital heading towards the industrial sector. Whether this becomes a trend or is just short-term in nature will be of interest and may reflect underlying structural changes as the US presidency changes hands.
Past performance is not indicative of future results.
Market Opinions: Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
74.74%of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
FXCM is a leading provider of online foreign exchange (FX) trading, CFD trading, and related services. Founded in 1999, the company’s mission is to provide global traders with access to the world’s largest and most liquid market by offering innovative trading tools, hiring excellent trading educators, meeting strict financial standards and striving for the best online trading experience in the market. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. In addition, FXCM offers educational courses on FX trading and provides trading tools, proprietary data and premium resources. FXCM Pro provides retail brokers, small hedge funds and emerging market banks access to wholesale execution and liquidity, while providing high and medium frequency funds access to prime brokerage services via FXCM Prime. FXCM is a Leucadia Company.
Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. The products are intended for retail, professional and eligible counterparty clients. Retail clients who maintain account(s) with Forex Capital Markets Limited (“FXCM LTD”) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds but professional clients and eligible counterparty clients could sustain losses in excess of deposits. Clients who maintain account(s) with FXCM Australia Pty. Limited (“FXCM AU”), FXCM South Africa (PTY) Ltd (“FXCM ZA”) or FXCM Markets Limited (“FXCM Markets”) could sustain losses in excess of deposits. Prior to trading any products offered by FXCM LTD, inclusive of all EU branches, FXCM AU, FXCM ZA, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the “FXCM Group”], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM AU (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. Our FX and CFD prices are set by us, are not made on an Exchange and are not governed under the Financial Advisory and Intermediary Services Act. The FXCM Group may provide general commentary, which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action.