Trump’s farewell gifts to Biden: roaring stocks, a weaker dollar, tons of debt

NEW YORK (Reuters) – When President-elect Joe Biden takes office on Wednesday, he will inherit a stock market near historic highs, along with a huge budget deficit, a weakening dollar, high economic uncertainty and a Federal Reserve that could have less ammo to fight the next crisis.

Here’s a graphical look at what has changed in the markets over the past four years and what investors should expect over Biden’s life.

1. MARKETS IN TRUMP

The S&P 500 has risen about 68% since President Donald Trump took office. Its 73% increase since late March has been helped by massive fiscal and monetary stimulus, as well as expectations that a COVID-19 vaccine will spur economic reopening.

Extremely low Treasury yields – which plummeted after the Fed cut interest rates to near zero – also increased the appeal of stocks.

(Chart: Markets Under Trump 🙂

2. 100 DAYS

If history is any guide, the stock market should give Biden a warm welcome. The S&P 500 has increased in the first 100 calendar days in eight of the past 10 presidential terms.

However, Biden’s first 100 days may be more difficult than those of his predecessors: while he needs to stimulate the economy quickly, the slim Democratic majority in Congress means the final size and timing of a stimulus package proposed by $ 1.9 trillion remains uncertain.

(Chart: US Stocks – First 100 Days 🙂

3. DOES THE BUCK STOP HERE?

Biden also inherits a dollar that fell 12% from the highs of last year. A weaker dollar helps exporters by increasing the competitiveness of US products overseas and increases the attractiveness of US stocks by making them more affordable for foreign buyers.

The rise in US yields has recently lifted the dollar from its lows and a more sustained move in the greenback is likely to trigger an easing of the market’s near-record dollar bearish stance and trigger further gains in the currency.

Regardless of where the dollar goes, the incoming administration has signaled that it will be less likely to comment on currency fluctuations than Trump, who periodically lashed out at a strong dollar.

(Graph: Dollar down 🙂

4. MORE DEBT

National debt rose nearly 40% under Trump to nearly $ 28 trillion, fueled by the passage of tax cuts in 2017 and a spate of spending to counter the economic blow from the coronavirus pandemic last year.

Some investors fear that the country’s extremely murky fiscal environment risks tarnishing the attractiveness of long-term US public debt, an outcome that could ultimately weigh on the attractiveness of the US dollar as a reserve currency.

In July, Fitch Ratings revised the US triple A rating outlook to negative from stable, citing the erosion of credit strength.

The US national debt is likely to continue to grow under Biden. Janet Yellen, his nominee for treasury secretary, urged lawmakers Tuesday to “act big” on the next coronavirus aid package, adding that the benefits outweigh the costs of a higher debt load.

(Graph: in debt 🙂

5. BALANCE SHEET ON BOARD

Biden will inherit a larger Federal Reserve balance than ever, thanks to increased spending following the pandemic.

Some fear that interest rates already at extremely low levels and asset purchases currently at $ 120 billion a month could give the central bank less leeway if the economy worsens or a new crisis strikes, putting further attention. on fiscal policy.

The Fed’s balance sheet is expected to grow to $ 9.1 trillion by the end of 2021, according to a December Reuters poll.

(Graph: Big Balance 🙂

6. UNCERTAIN TIMES

The coronavirus pandemic has increased economic concerns during the final year of Trump’s tenure. The early years of his presidency were marked by strong trade friction between the United States and China that rocked asset prices.

Economic uncertainty related to policies measured by www.policyuncertainty.com, based on quotes of economic uncertainty in news articles, is currently higher than it was after 9/11 or the Great Financial Crisis.

(Graph: uncertain times 🙂

Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Dan Grebler