Compared to Europe and China, America Is Still a Safe Bet
Many financial experts have rushed to make what has been regarded as “Biden trade” calls based on the projections by the Associated Press, NBC News, and other news outlets of a Joe Biden presidency. The “Biden trade” is a synonym of a recommendation to invest in assets that may benefit from a Democratic presidency judging by the main policies announced throughout the campaign.
The first risk for investors is to make significant bets on radical changes of policy when the balance of power in the House and Senate may inhibit many of the headline-grabbing policy changes. We already have reports, for example, that show how the tax hikes may be halted due to a combination of a divided government and the negotiations of a new stimulus package.
What Were Investors Betting on at the Beginning of the Trump Administration?
The second risk for investors is to follow apparently well-argued bets based on a political outcome which end up creating the opposite effect. In 2017, Nobel laureate Paul Krugman wrote about the stock market after a Trump victory: “If the question is when markets will recover, a first-pass answer is never.” The S&P 500 broke new all-time records in the following three years. The Trump presidency saw a surge in stocks, an all-time low yield in US debt, record levels of employment, rising real wages, and strong growth before the pandemic. A similar situation happened with the Obama administration. Many investors and experts predicted a surge in renewable stocks and a collaps
Article from Mises Wire