In a CNBC Quarterly Report survey, 66% of the top 100 investors and money managers said the stock market will get worse during the first four years of the Biden administration. This is in marked contrast to the Trump presidency. In 2017, as soon as Trump assumed the role of President, the S&P 500 rose by more than 60%. This is mainly due to Trump’s corporate tax cuts that increased profits and encouraged stock buybacks. Also, the Trump administration eased up on market regulations to encourage a more industry-friendly environment for oil, tech, and others.
Investors see headwinds under the Biden administration, according to survey respondents. CNBC contacted more than 100 chief investment officers, portfolio managers, and CNBC contributors. They asked participants where they think the stock markets are heading in 2021 under a new administration.
Less Wall Street Friendly
Top business executives are starting to worry that the incoming Democratic administration would prove less friendly compared to the Trump era. Both corporations and high-income households will have to cough up more money in taxes once Biden sits in the Oval Office.
Biden announced plans to raise taxes by about US$4 trillion over the next decade. Specifically, the increase in tax rates covers all businesses and affluent households. This means anyone earning more than US$400,000 annually.
For corporations, Biden plans to roll back the Trump-initiated tax cut rate of 25% back to its old rate of 28%. In addition to removing these tax cuts, Biden plans to raise capital gains rates for people who earn more. Investors believe that these tax plans can backfire. It will cut through a chunk of earnings at a time when market valuations are enjoying record highs. At the same time, while Biden’s anticipated policies can create roadblocks for the market, some industries may find themselves in a better position. Among the sectors seeing a positive change in consumer discretionary, industrials, and financials, according to survey participants. Meanwhile, utilities, consumer staples, and energy will likely experience a harder time gaining ground.
Dow Jones Targets
Now that the Dow Jones Industrial Average hit the 30,000 barriers earlier this November, participants gave their opinion on how the DJIA will perform in 2021. The index had its shares of ups and downs throughout the year. Ultimately, it managed to overcome its pandemic -related losses and then set record highs.
66% of survey respondents said the index will most likely finish 2021 at 35,000. This represents a gain of 16% which represents a roughly 16% gain from last Thursday’s close of 30,199.87.
A further 5% were even more optimistic, saying it could hit 40,000 by the end of next year. Meanwhile, 10% believe the Dow will fall back to 25,000, and 18% think the index will hover at 30,000.
New Investments to Tap into in 2021
Asked which new investments will clients look into for the next year, survey respondents said Special Purpose Acquisition Companies (SPAC) came in first at 58%. SPACs are shell corporations that operate like a blank check. It takes companies public without the need for the IPO process. SPACs let retail investors invest in private equity transactions. Funds raised via blank check deals reached a record $70 billion, a fivefold growth from 2019.
Meanwhile, Bitcoin came in second at 9%. The cryptocurrency broke all records this year and emerged the clear winner among major assets. It helped that Bitcoin started getting mainstream acceptance. High profile investors like Paul Tudor Jones and Stanley Druckenmiller helped increase its popularity. Bitcoin also received legitimacy after being adopted by companies such as Fidelity Investments, Square, and PayPal.
Watch the CNBC report discussing what a market recovery from the pandemic-driven downturn could look like during President-elect Joe Biden's tenure:
Do you agree that the stock market will get worse under a Biden administration? Or do you think otherwise? Either way, let us know what you think by submitting your comments below.