What's next for the U.S. economy and stock market?


David Joy, Chief Market Strategist, and Russell Price, Chief Economist – Ameriprise Investment Research Group

A road winds through snowy, forested mountains

 

Capital markets continue to react to the election cycle and pandemic. How can investors put recent and current market activity into perspective?

In the following Q&A, David Joy, Chief Market Strategist, and Russell Price, Chief Economist, summarize the market and economic landscape and considerations for investors.

 

Given the Electoral College has voted to select Joseph R. Biden Jr. as president, what could investors anticipate with policy changes?

David Joy: The confirmation of the presidency alone might typically be sufficient for investors to begin making judgements about potential tax and spending policy changes. However, the picture remains clouded due to the Jan. 5 runoff elections for the two Georgia Senate seats. Republicans currently hold both seats. Unless the Democrats win both, Congress will remain divided with Republican control of the Senate and Democratic control of the House of Representatives.

 

What could policy changes mean for investment portfolios near term?

David Joy: The uncertainty could present a dilemma for investors. Given the importance of the Georgia elections relative to Biden’s agenda, investors might be inclined to wait before making changes to their portfolios or tax strategies. However, that could leave investors exposed to potential tax impacts later. If you have questions regarding your situation and potential implications, contact your Ameriprise financial advisor.

 

What are the overall election implications for the U.S. economy and stock market?

Russell Price: Over the near term, surging COVID-19 infection rates will likely dictate the course of economic activity. The U.S. economy made considerable progress in its recovery through October, but virus conditions are once again mandating business constraints in some areas. The economy could slow as a result. Beyond this period, we believe the economy should do well. Assuming virus conditions can be contained by recent vaccine and treatment advancements, growth should benefit from ongoing recovery efforts. 

David Joy: Given the policy priorities Biden outlined during the campaign, investors could see meaningful changes in the areas of trade, spending and tax policy. What those changes might be, and what sectors might be most impacted, will depend the ability to pass legislation in a possibly split Congress. Investors can, however, prepare ahead of time for changes that could be coming by speaking with their Ameriprise advisor.

 

In other forums, you’ve said the stock market is forward-looking. Given the range of market activity during the election cycle plus the recent news on vaccines, what are the main takeaways for investors?  

David Joy: The election cycle and vaccine news both have influenced market activity, making it important to reflect on — but difficult to separate — their relative impacts.

Overall, the market reaction has been positive, with an emerging shift in favor of cyclical stocks. Here are more specific observations that put two important weeks into perspective.

November week one:

  • The S&P 500® Index rose 9.6%, reaching a record-high closing.
  • The market’s behavior was mostly in reaction to the election.
  • At a sector level, Health Care, Information Technology and Telecommunication Services led the way. Energy, Utilities and Real Estate sectors underperformed.
  • In our view, investors favored the end of election uncertainty. They also discounted the chances of a sharp rise in fiscal spending with a Biden administration and the likelihood of split control of Congress.

November week two:

  • Pfizer announced vaccine results just before the second week.
  • In response, the S&P 500 Index rose by a more subdued 2.2%.
  • However, sector leadership reversed from week one, with Energy, Industrials and Financials leading the way higher. Consumer Discretionary, Information Technology and Telecommunication Services lagged.
  • We believe investors had renewed optimism that a COVID-19 vaccine would lead to faster economic growth.

 

Given what’s yet to unfold, what would you encourage investors to consider as they talk with their Ameriprise financial advisors?       

Russell Price: We believe another round of government stimulus is likely to be passed relatively soon. The support offered via previously passed pandemic stimulus legislation has largely been exhausted, leaving those most negatively affected by the current outbreak with little assistance. If another round of stimulus can be passed before the end of the first quarter of 2021, we believe that — in combination with what could be easing COVID-19 conditions — the stimulus could spur a surge of economic activity as we head into summer.

David Joy: Until the results of the Georgia Senate elections are determined in January, there will remain a great deal of uncertainty regarding sector implications of the election. In our view, it’s prudent to wait before making any tactical portfolio adjustments. For those considering certain tax strategies, however, now may be an opportune time to initiate discussions with their Ameriprise advisor and a tax professional.