Well, you can’t say he didn’t warn us.
In fact, Joe Biden has repeatedly promised that we’re coming up on a “dark winter.”
And the stock market would be wise to take him at his word.
A Dark Winter
Consider the increasing frequency of his “dark winter” statement. It was a phrase first offered up by the candidate in the final presidential debate but now is seemingly his “go-to” line.
Indeed, in his first speech on the economy this week (a virtual meeting with business and union leaders, including the chief executives at General Motors, Microsoft, Target, the Gap, and the head of the United Auto Workers) Joe Biden made a point to emphasize the treacherous months ahead, saying the United States is “going into a very dark winter.”
Ok. I hear you, Joe! And the market hears you too.
Stocks Retreat From 30k Level
After nearing Dow 30k, stocks have backed off from all-time highs this week. After all, if we’re going into a “very dark winter,” how can one justify buying into a market that is trading at twice its historical price-to-earnings ratio?
With a dark winter on the horizon, this market is getting too expensive.
And that’s despite some rather good news–namely the vaccines–an accomplishment of science, corporate America, and this administration’s efforts to speed up and streamline the process. An accomplishment which Biden, undoubtedly, will fail to recognize.
The Good News…
Both Moderna and Pfizer have just announced the completion of Phase 3 trials for their Covid-19 vaccines with roughly 95% efficacy rates. They are applying for FDA approval and we could see Pfizer’s vaccine in the market, says the company, in just a couple of weeks. Meanwhile, the Federal Reserve has abandoned its bias against inflation and indicated low rates for the foreseeable future. Although I take issue with that overly accommodative policy and worry about the long-term unintended consequences, the Fed’s allowance of some inflation with low rates as far as one can see, is still theoretically good news for equities in the near term.
Another piece of good news for investors could come in the way of additional stimulus. The left is sure to push for a massive aid package, and though (thankfully) the adults in the Senate may prevent such a large undertaking in the $3 trillion range, the economy will most likely get something — and, that something will be on the margin, stimulative.
So, why will things be possibly bad? Why will stocks suffer through a “very dark winter” with the rest of us?
Because attitude matters.
One of President Trump’s biggest selling points (for the market and for working Americans, anyway) was his willingness to cheer the country on–even in the face of adversity. Some analysts resent this optimism and deem it unrealistic and even dangerous, especially when it came to his optimism over Covid-19.
The President was highly criticized this past spring for suggesting a vaccine could come before the end of the year. At a Rose Garden event on May 15th, the President said, “We’re looking to get it [the vaccine] by the end of the year if we can, maybe before.”
The mainstream media immediately responded with “fact checks.” In fact, NBC News ran the following headline on its website, “Fact Check: Coronavirus vaccine could come this year, Trump says. Experts say he needs a ‘miracle’ to be right.” (Emphasis mine.)
Apparently, he got that miracle. Because Pfzier hopes to have a vaccine approved and on the market within the next couple of weeks. That would be before the end of the year.
A President’s outlook matters. Is the glass half-full or half-empty? With President Trump, it’s not even a question worth asking.
I remember interviewing him in November 2004. His casino company had just filed for Chapter 11 bankruptcy protection and I arrived at his office with my camera crew. He walked into the room–all smiles–shouting, “Trish, can you BELIEVE this? Isn’t it GREAT?!”
“But, your company filed for bankruptcy,” I noted, a little confused.
“Yes,” he said, enthusiastically. “Isn’t it terrific? This is a great deal,” he insisted.
Because, apparently, to him — it was. And that was my first introduction to “glass half-full” Donald Trump. Trump saw Chapter 11 as a much-needed lifeline for his business…and was already making plans to move on. Later, you’ll recall when the issue came up in the first Republican presidential debate? Trump stated, “I have used the laws of the country, the [bankruptcy] chapter laws, to do a great job for my company, for myself, for my employees, for my family.”
It may be an extreme example, but this is clearly the kind of man who seeks to make lemons out of lemonade. He plowed through bad news with a bulldozer, intent on coming out the other side.
It’s that kind of thing that drives the mainstream media nuts. But, I’m going to tell you something: optimism beats pessimism any day of the week. Joe Biden, like President Omama whom he served, tends to emphasize negativity. And, ultimately, I don’t believe that tactic will help produce the economic growth we want and need as a nation.
Low Growth is Not The “New Normal”
You’d think if you had just become President, you might want to emphasize the positive, right? If you’re leading a team into battle, you don’t want to be unrealistic, however, you do want to position the team for a win?
Just as Barack Obama complained for eight years that we were in a structural shift in our economy and that low growth was the “new normal,” I suspect Joe Biden is setting us up for low expectations. It’s as though he’s trying to manage our aspirations… already warning of that “very dark winter.” In addition, his team is telegraphing that Donald Trump’s administration is trying to effectively sabotage them on the international front. I guess everything is and, will be, Donald Trump’s fault. When the economy stumbles, when international challenges are presented…Biden will blame Trump. Enough already. If you’re going to lead, lead!
Biden’s Gloom and Doom
But, the dye is cast and already we’re getting evidence of troubles ahead. Weekly jobless claims have jumped. October’s retail sales were the weakest since last Spring. And, now, with multiple states going into lockdown mode, people will surely curtail their spending just ahead of the all-important Christmas holidays…thereby making Biden’s prediction a reality.
All of this negativity will take its toll on the markets and the economy.
So, yes. Unfortunately, I get it, Joe Biden. You’re preparing us for a long dark winter…and possibly a very gloomy spring.