Biden wins a historic election - why the stock market bulls are excited

As a highly tense election night developed into a dramatic election week, Joe Biden was elected president on Saturday morning and stated that "The people of this nation have spoken; they delivered us a clear victory". Not only may they have delivered victory to Biden and the Democratic party however - but also further gains for equity markets.

The more the votes were counted at the latter stages, the greater clearity there became of a Democratic White House and as the likelihood rose, so too did stocks. On Wednesday the S&P rose 2.2% - it's best ever result for the day following an election - which was then followed by 2% on Thursday, resulting in the S&P's best election-week gain since 1932.

The rally had largely been driven by the technology sector which, to many analysts, now has the goldilocks scenario of a Democratic Presidency and a Republican senate. Going into the election, many investors feared for technology stocks given the higher taxes, tighter regulations and unfavourable policies that a Democratic party would likely bring. However, with the Democrats unable to take control of the senate, Biden has a much harder task to bring these to fruition. With the outlook vastly improved for tech, investors wasted little time getting back in. Although tech indeed led the way, a divided congress which sees any major policies likely stymied, is very much viewed favourably by the market overall.

The catalysts for the tech sector don't end there however. With Biden at the helm, there is likely to be a more friendly tone to US-China relations and China technology, helping in particular names such as Apple and Cisco that have been caught in the crossfire between the two nations. Add to this that coronavirus cases in the US continue to mount and top 126,000 for a second straight day, and the backdrop looks even better for tech and stay-at-home beneficiaries - at least in the near term.

Wedbush see another 10-15% for tech into year-end, whilst Morgan Stanley's Wealth Management CIO also now sees a "return to the FAANGs". However, despite all the hype surrounding technology, JP Morgan noted that regardless of the election, the market is primed for a broadening of leadership - meaning smaller-caps and more cyclically-oriented names could outperform.

Despite the difficulties for Biden to get many of his desired policies through, his victory is still likely to benefit certain sectors. His pro-renewable energy stance for example has already lifted renewable energy stocks. He could also spell trouble for traditional energy companies who have even struggled under a business-friendly Trump, with Biden pledging to ban new drilling on any federal land.

For healthcare meanwhile the outcome is mixed. Some insurers may benefit as Biden has vowed to expand Obamacare, whilst for the pharmaceutical space there is potential pressure from Biden's desire to prevent drug price hikes. Financial stocks would be set to benefit if and when we do see a cyclical recovery, but many still need to see interest rates rise - something that the Federal Reserve looks to make difficult given their pledge to keep rates low for an extended period.

The fact that congress remains divided has also put a dent in those hoping for the reflation trade - the idea that there would be substantial fiscal stimulus from a democratic White House and Senate that would bring back US growth and inflation - and this has hampered smaller-cap performance as the polls have unfolded. A stimulus package is now seen by strategists to be around the $500bn as opposed to the $1tn Democrats had been planning.

Whilst equities now look set to benefit from reduced uncertainty on the election result, risks remain as coronavirus cases continue to accelerate across the nation whilst hopes for a significant stimulus bill appear dented. Vaccine results over the coming weeks will likely dictate the extent to which certain sectors outperform, but at least for now, the case for the tech and stay-at-home names remain as compelling for analysts as when the pandemic first began.