Joe Biden’s time in the White House has been a positive one for U.S. stocks. - MarketWatch illustration/Getty Images, iStockphoto
U.S. stocks closed out Joe Biden’s era on a high note as the president bids farewell to the White House.
The 46th president of the United States is bringing his time at the White House to a close with the S&P 500 SPX up over 55% since he took office on Jan. 20, 2021. The Dow Jones Industrial Average DJIA advanced more than 39% over the same period, while the tech-heavy Nasdaq Composite COMP jumped nearly 46%, according to Dow Jones Market Data.
However, the Dow and the Nasdaq saw their worst returns since George W. Bush’s second term between 2005 and 2009, while the S&P 500 logged its smallest gains since Barack Obama’s second term between 2013 and 2017, according to Dow Jones Market Data (see table below).
SOURCE: DOW JONES MARKET DATA -
To be sure, Biden’s presidential term began in 2021 with an escalation of the COVID-19 pandemic and an economic downturn. The major stock averages still posted double-digit returns by the end of that year, as the global economy began its recovery from the pandemic, while the Federal Reserve maintained supportive monetary-policy measures first implemented in early 2020.
But in 2022, Wall Street suffered its worst year since the 2008-’09 financial crisis amid Russia’s invasion of Ukraine, while the U.S. economy grappled with soaring inflation and higher interest rates.
Then in 2023 and 2024, a tech-fueled earnings recovery and the artificial-intelligence frenzy propelled U.S. stocks to historic levels. The S&P 500 scored back-to-back double-digit annual gains by the end of 2024 — and is now kicking off its third year in a bull market.
David Russell, global head of market strategy at TradeStation, said there was “an explosive surge” in cyclical sectors of the economy that benefited from the reopening after the pandemic and the Biden administration’s landmark Inflation Reduction Act in 2022, which “really spurred industrial activities that in many ways triggered higher interest rates and the bear market of 2022,” he told MarketWatch on Friday.
“But then the AI thing was [a] completely different [tailwind for the market] because it had nothing to do with Biden. It had been building for years before coming to fruition in the early part of 2023,” Russell said.
Stock-market performance between Election Day and the inauguration
Hopes have been high on Wall Street since President-elect Donald Trump won the presidential election in early November. Investors have been betting that the former president’s return to the White House could further strengthen the economy and corporate America by providing tax relief, cutting financial regulations and hiking tariffs.
But some of his economic plans could lead to a rising fiscal deficit and a resurgence of inflation, which may harm the government-debt market and send interest rates higher again.
Stocks jumped sharply after Trump’s victory on Nov. 5, but they erased some of their postelection gains in the following two months. The S&P 500 rose 3.7% from Election Day through Jan. 17, its worst performance in that span since Obama was elected in 2008. The Dow popped 3% and the Nasdaq was up 6.5% in the same period, according to Dow Jones Market Data (see chart below).
SOURCE: DOW JONES MARKET DATA -
“The first thing that happened in the stock market since the election was the market rally with risk assets going up and interest rates going down. Then all of a sudden, inflation fears kicked back in … and we were left with a much steeper yield curve,” said George Cipolloni, portfolio manager at Penn Mutual Asset Management.
Treasury yields surged last week after stronger-than-expected jobs data sparked a sharp selloff in the government-debt market, jarring stocks and prompting investors to consider the possibility that the Fed may need to pause interest-rate cuts until later this year. Then this week, a relatively benign consumer-price index report triggered a sharp relief rally in stocks and bonds, dragging down the 10- BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y rates.
“We’ve normalized rates here on the longer end, but every shift up or down in Treasury yields is gonna have a magnified effect on the stock market,” Cipolloni told MarketWatch via phone on Friday.
But in Russell’s view, there is “no reason for investors to just assume Trump will do everything in a way that will cause problems” for the financial markets and the economy, since all these fears about tariffs pressing up on inflation may just become ‘a wall of worry’ that dissolves,” he said.
The stock market has moved “sideways” over the past three months and traded around where it settled after Election Day, which has made Russell and his team believe stocks could break out of “this period of consolidation” very soon.
“Looking ahead, we see double-digit earnings growth. We see the Fed placing a dovish expectation and reducing some of these hawkish beliefs that emerged in the last few weeks, and we see the new president coming in with executive orders [on deregulations],” he said. “People who have been sitting on the sidelines might feel that there’s a reason to be getting more involved again.”
U.S. stocks finished higher on Friday, the final trading day of Biden’s term in office. All three major benchmarks posted weekly gains amid a retreat in Treasury yields. Investors were also looking ahead to this week, when Trump is set to be inaugurated as president for the second time.
