Investors should ride the “Biden bounce” in the markets this week, albeit judiciously, according to the founder of deVere Group.
Nigel Green, deVere Group founder and chief executive, said investors should be warned as the period between the election and inauguration had been the best for any president going back five decades.
“History teaches us that we can expect the markets to react favourably to the inauguration of a new US president – and this time around it is likely to be no different,” Green said.
“Indeed, Biden moving into the White House could drive markets into a bull run more sharply than previous inaugurations because it is hoped the incoming administration will bring stability and possibly a halt to a period of uncertainty following the fiercely contested election.
“Investors will also be buoyed by the [US] $1.9 trillion [$2.47 trillion] fiscal stimulus announced by Biden, the Federal Reserve’s willingness to support markets, the new president’s multilateral trade agenda and his plans for stepping up the vaccine rollout. All of this will encourage confidence and optimism.”
Green said investors should enjoy the “Biden bounce” in the markets, but do so judiciously for three key reasons:
“First, a market rally is going to be difficult to sustain indefinitely due to the enormous economic scarring caused by the pandemic,” Green said.
“The major long-term headwind is mass unemployment, which is hitting demand, growth and investment on Main Street and which, ultimately, will have to impact Wall Street.
“Second, the new administration will have new policies that will have an effect on different sectors of the economy. There will be a readjustment period that needs to be taken into account.
“And third, not all shares are created equal and stock markets are heavily unbalanced at the moment. A handful of sectors are bringing up entire indexes.”
The warning comes as research showed that a change of presidency had done little to affect the performance of the US market over the last 12 years.
Green said an experienced fund manager would help investors seek those most likely to generate and build their wealth over the long-term.
“Investing over the long-term on stock markets remains, as ever, one of the best and proven ways to accumulate wealth,” Green said.
“But it’s essential that investors remember not to be complacent when confidence grips the markets.”