How Is the Stock Market Responding to Biden’s Win?

Joe Biden will become the 46th president of the United States. However, like most things in 2020, last week’s presidential election was unprecedented. Americans turned out in record numbers to cast their votes, and due to the COVID-19 pandemic, millions did so by mail. Since rules regarding vote counting vary by state, several battleground states inundated with mail-in ballots had yet to declare a winner by the end of the week.

As it turns out, the stock market accurately predicted the outcome of the election. The S&P 500 dropped 0.04% from July 31 to Oct. 31, which meant the market favored Biden, according to CFRA Research’s Presidential Predictor.

Of course, Biden’s win wasn’t called until Saturday, meaning the market was filled with uncertainty last week. Since it can be largely affected by presidential elections, investors weren’t sure what to expect going into the week. Here’s a look at market trends during election week and a preview of what to expect during the week ahead.

As of Nov. 6, the Cboe Volatility Index — also known as the fear gauge — was headed toward its largest weekly drop in roughly two years and its second-worst skid during a presidential election week since 2016, according to Dow Jones Market Data. After ending at 38.02 the week before the presidential election, the VIX was down to 26.02 — a nearly 32% drop.

VIX index values move down when the market is climbing, as it’s a sign investors’ fears are eroding.

Despite the lack of a defined winner, the S&P 500 realized its second-best performance during any presidential election week on record — it’s best since the 1932 election — according to MarketWatch.

However, the S&P could be in for a short-term drop since Joe Biden has won the election. Historically, Democratic Party wins have accompanied weaker Novembers, according to CNBC. A lull likely won’t last long, as the S&P 500 typically realizes above-average price gains — and more frequent gains — in December, after a Democratic president is elected.

No doubt, the stock market had a healthy election week, but averages were slightly lower on Friday. The Dow Jones Industrial Average traded 91 points lower — or 0.3% — and the S&P 500 tumbled 0.1%, as well as the Nasdaq composite, according to CNBC.

Despite that, the Dow was still headed for its biggest week since June. The S&P 500 and Nasdaq were slated for their highest one-week surge since April, according to CNBC.

It remains unknown what, if any, relation these slight Friday falls had to the election.

On Election Day, five states voted to legalize some type of marijuana use — and the stock market responded. Aurora Cannabis soared more than 56% on Friday, resulting in total gains of nearly 100% since Election Day, according to CNBC. On Friday, Tilray and Canopy Growth also increased by approximately 23% and 11%, respectively.

CNBC also predicts traders could be betting Biden would be willing to legalize marijuana on a federal level.

After a week of election week gains where all major averages surged at least 7%, analysts aren’t sure what to expect this week. On Friday, CNBC’s Jim Cramer said investors “should do nothing” on Monday when the stock market opens.

“Next week could be unpredictable. My bias remains bullish,” said the “Mad Money” host. “Although we have to keep our eyes open because this is still kind of a crazy market, and we [just] had one of the best weeks I’ve seen in years.”

As for Monday, the Dow ended up soaring as positive news came out from Pfizer in regard to its coronavirus vaccine trial. Now we’ll have to see how the rest of the week goes.

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