How long will the ‘Biden Bounce’ last for the British stock market?

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The global stock markets experienced a boom in the wake of the presidential election, followed by groundbreaking news from Pfizer and BioNTech in the race for a COVID vaccine.

On Wall Street, stocks reached record highs again, while the battered FTSE 100 gained more than £70 billion, giving analysts hope that things are finally looking up. Asian stocks also jumped, with Japan’s Nikkei 225 climbing 2.1% to 24,839.84 – the highest level since 1991. Similar gains were seen in Australia, China and Hong Kong, while the oil and currency markets also rose.

President-elect Joe Biden has already announced that he will reverse many of the policies from the Trump era, including the resumption of the Paris Climate Change Accord in January, with expected plans to expand fiscal stimulus in the U.S. and expand measures to reduce the spread of COVID-19.

Since it seems unlikely that the Democrats will have control of both houses of Congress, the Senate may be able to block any major regulatory or fiscal policy, which is welcomed by the markets, who hope that a split Congress will ensure that interest rates can remain low for longer.

Biden has secured at least 290 votes in the electoral college – more than the 270 votes needed to win the presidential election – but incumbent President Donald Trump has still not given in. The president and many of his supporters and allies have claimed without evidence that Biden and Vice President-elect Kamala Harris received votes through widespread electoral fraud.

Analysts tell Washington Newsday that they hope that the “Biden recovery” for the British market will continue. Chris Beauchamp, senior market analyst at IG, said Trump’s refusal to make concessions has so far been widely seen as a “minor problem”. He said: “The FTSE 100 has been caught up in the general post-election relief and it has been boosted by the vaccine news from Pfizer. It has been boosted by the ‘reopening’ of stocks such as travel, airlines, aerospace and oil, which have shot up in hopes of an earlier than expected reopening of the UK and world economy.

“Considering how far many of these names have fallen, a longer-term rally could be imminent that would help break the course of the terrible performance since June, when the index plummeted while US stocks were being pushed forward.

“Everyone is watching the political situation with suspicion and is aware that political instability could spill over to the entire U.S. economy, but at the moment, every Trump’s obstinacy seems to be a small problem that will be resolved in due course.

Randeep Somel, equity fund manager at M&G Investments, expects that global markets will continue to respond positively thanks to the “stable and predictable policies” under Biden. “Although Donald Trump has yet to give in, it looks like all the options he has to stay in power are slowly disappearing and there should be a peaceful transition of power,” Somel told Washington Newsday. “The greater the certainty of the outcome, the stronger the FTSE100 should be, as it is a highly international index”.

It is expected that Biden’s promise to rejoin the US as a signatory to the Paris Climate Change Accord will also extend its so-called “upswing” in markets around the world. “While this is largely symbolic, though not accompanied by legislation, it is a very positive declaration of intent that will encourage the development of new sectors and companies,” Somel said. “European companies have a strong commitment to sustainability and especially green energy; these sectors are likely to receive strong support in the coming years. Chinese President Xi Jinping has also hinted in recent weeks that China is aiming for climate neutrality by 2060. The green energy and green technology sectors should be winners of this policy change for several decades”.

Somel says the results of Pfizer’s COVID vaccine study have undoubtedly had the biggest impact on the FTSE100 and the accompanying U.S. and Chinese stock markets. It is hoped that success in future studies will see a similar upswing. “We still have COVID-19 study results from other pharmaceutical companies pending, including a large study by FTSE100-listed AstraZeneca,” said Somel.

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