After a fairly tumultuous year, both for the stock market and for the people, it's time to wrap things up and head into January with a little bit of optimism in tow. These certainly aren't ideal times for an optimistic economic forecast, but there's always a light at the end of the tunnel. Our 2021 economic outlook may not be perfect, but there's a lot of cracks coming through the darkness that deserve attention.
Biden Win Means a Mixed-Party Government
Biden appears to have won the election, though the Senate is still dominated by the Republican party. At best, the White House can expect an equally divided Senate if Democrats can win what appears to be a long-shot in the Georgia run-off election. While Biden and his administration would theoretically be aiming to pump as much money back into the economy as they could in the midst of the on-going pandemic shock, the mixed government we're left with makes the outcome of a comprehensive fiscal stimulus plan unlikely. While Congress debates the details of another check in the mail for citizens, there are some potential benefits to keep in mind.
Mixed-Party Government Historically Means Major S&P 500 Growth
One fact that is liable to perk up plenty of sour faces is that the highest S&P 500 growth post-election year in the past 30 years occurred in 1997, with a Democrat president and a Republican senate1. 2021 will be the first year since 1997 that this specific event has occurred (let's call it a political eclipse). Hopefully, this track record can help overcome the unprecedented historical event of the Covid-19 pandemic. Any way you look at it, the S&P 500 growth has been higher on average in the first year of Democrat presidents than Republican presidents over the past 30 years. If history can be trusted, we are looking at a healthier and more sustainable year ahead than the one we're leaving behind.
Biden's Tax Plan and Student Loan Forgiveness
As a $900 billion-dollar comprehensive stimulus plan awaits the President’s autograph, 2021's change in regime will bring with it a new tax plan. With increased taxes from the wealthy, a little bit of public reinvestment will be just what the doctor ordered to bring America back out of this pandemic... that is, once it's over. There's also the hope of the "Biden student loan plan", where Biden could potentially enact an executive order forgiving massive amounts of college debt across the country. If this were to happen, the effects would likely be much more beneficial than any single stimulus package ever could.
Things Tend To Get Worse Before They Get Better
It appears that the Covid-19 pandemic isn't going away anytime soon, though some are optimistic that the Biden administration may be able to handle the outbreak better than Trump's did. However, "handling it better" is likely to mean more lockdowns, and more lockdowns are likely to lead to an immediate decline in the market. Hopefully, positive long-term effects of reducing the spread will more than make up for it. A savior looming on the horizon is the Covid-19 vaccine, which is rapidly being injected into arms around the world. If all goes well, the Biden administration will find bipartisan support to rebuild the economy, and it will flourish once again! Regardless, hold on tight, because similar to the effect of Covid-19 on humans, the effect on the economy will probably have long-lasting repercussions.
(revised 12/23/20, the Senate & House have passed a COVID-19 Relief Bill. The President, true to form, has called for more money to citizens, up to $4,000 per qualifying married couple. So it could be all for show, or maybe there will be an actual veto? 🤷🏾The bill already has more than 2/3rds support of each chamber, however, it’s hard to resist more money for citizens. Maybe it’s all just set up for a Christmas miracle.