During the 2020 campaign, President Donald Trump sought to undercut Joe Biden’s popularity by calling him “Sleepy Joe.” But on Wall Street, a return to stability and predictability in Washington – which the industry expects Biden would bring – would be welcomed.
The chaotic nature of the Trump era has left investors constantly on the edge of their seats. Whether a verbal assault on the Federal Reserve chairman or a sudden decision to lob tariffs on China or an attack on a major American company like General Motors, there hasn’t been a dull moment.
If the presidency goes to Biden, a conventional politician with 40 years of experience in Washington, he is expected to govern with the kind of steadiness that investors crave. That could reduce uncertainty for markets, especially in key areas such as trade policy, foreign relations and negotiations with Congress on ways to revive the economy.
“Investors spent the last four years one tweet away from major market moves,” said Ed Mills, Washington policy analyst at Raymond James. “That is not Joe Biden’s style. Even if there’s uncertainty, it will take a longer time to play out and will take a more predictable path.”
Wall Street is already preparing for a Biden presidency – even though the race has not been called by CNN or other major news outlets.
Markets surged through the first four trading days this week as investors celebrated the likelihood of divided government – gridlock that removes the threat of sweeping legislation such as tax hikes.
“The market is pricing in a split government: a Biden victory and a Republican majority in the Senate,” said Mills.
Michael Strobaek, global chief investment officer at Credit Suisse, told clients in a report Friday: “After a short period of uncertainty, we believe Joe Biden has secured a majority of Electoral College votes to become the next US president.”
The Trump era has brought an unprecedented amount of turnover to the executive branch, as the president has had four chiefs of staff in as many years, and constant speculation has swirled about firings of other officials. That is important for investors because federal officials set policy, hence the saying: “personnel is policy.”
“We all spent a lot of time on the palace intrigue of who’s in and who’s out. Who is the president happy with? Who is serving in an acting capacity?” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
For instance, former Secretary of State Rex Tillerson was famously fired in 2018 over Twitter after 14 months on the job.
“Rex Tillerson feels like four lifetimes ago,” said Boltansky. “The reality TV-like cycle, when it came to different advisers and appointees, made it difficult to forecast actual policymaking.”
Trump’s unpredictable style has kept his political opponents and adversaries off balance. And it has also made it hard for investors to put much weight into what his lieutenants say.
“Hearing from the chief of staff doesn’t really matter because he can be overruled in a tweet,” said Boltansky.
Is the trade war on or off?
The unpredictable trade war between the United States and China has also caused significant turbulence on Wall Street. Investors were left guessing: Were tariffs were ramping up or down? That environment also made it difficult for Corporate America to determine where to invest overseas and how to manage intricate supply chains.
“When we were in the throes of the tariff wars, we saw significant volatility,” said Kristina Hooper, chief market strategist at Invesco. “We’ll definitely see a return to a more traditional approach to governance. It could tamp down day-to-day volatility.”
Biden would be expected to take a softer tone with Europe on trade. However, he would possibly take a tough stance with China because there is bipartisan support for addressing the Beijing’s trade tactics, particularly over the theft of intellectual property. Still, those concerns could be dealt with in a less volatile way.
“There is likely to be an end to unpredictable trade wars and a return to a rules-based system for international relations,” ING strategists wrote in a report Thursday.
‘Immune to the tweets’
Eventually, investors became somewhat numb to Trump’s sudden tweets, and they have been tuning out all but the most important.
“The stock market almost became immune to the tweets and came to accept that as just part of the current president’s governance style,” said Hooper.
Boltansky said that investors eventually realized “there was a gap between the rhetoric and the reality.”
However, just last month Trump abruptly short-circuited stimulus negotiations via a tweet and within minutes the Dow plummeted by 600 points. Trump reversed himself and spent weeks trying unsuccessfully to get a pre-election stimulus deal.
Although a Biden White House would still bring about uncertainties, it would be unlikely to come close to the chaos of the last four years.
“Investors like when they don’t have to worry about DC,” said Mills.