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On the whole, the market is up during the four years of almost every presidency: Washington Policy Analyst

Ed Mills, Washington Policy Analyst at Raymond James joins Yahoo Finance’s Julie Hyman and the Yahoo Finance Live Inauguration Special panel to discuss the market reaction to the 46th Presidential Inauguration of President Elect Joseph Biden.

Video Transcript

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ADAM SHAPIRO: Let's bring in to the stream to discuss this Yahoo Finance's Julie Hyman, along with Ed Mills, who is Raymond James Washington policy analyst. And Ed, I'm going to start with you. Are you hearing anything yet that would signal to you that OK, we're going to do $1.9 trillion as President Biden is going to request?

ED MILLS: I don't think there's anyone who thinks that we were going to do $1.9 trillion any time soon. But I do think, Adam, the market is pricing in that more stimulus is inevitable, and that throughout this year, Washington is going to spend a lot of money. And so far, the signals from the Biden administration is that anything related to pay floors or some of the negatives, those are going to come later.

And so, if we start off thinking more fiscal support's coming, we're going to have a strong partnership between Janet Yellen at the Treasury Secretary and Jay Powell at the Fed, and that some of the more negative aspects are going to be back-ended, and that this is an administration that is going to focus on economic recovery. That's really good news if you are a market participant, and it's not something that anyone that I'm talking to wants to get in front of and fight the Fed, fight the Treasury, fight this administration.

KRISTIN MYERS: Ed, I'm wondering how long you think that markets are going to continue to positively react to this Democratic trifecta before that Senate runoff election. We kept hearing that markets would look at it positively if Republicans could somehow maintain a majority in the Senate. But we're in the midst of a pandemic right now, so it looks like markets are obviously considering that stimulus. Once we get past that, however, do you think that the calculation is going to change?

ED MILLS: That's an important discussion. And I think when you kind of go down a layer-- so the top line, more money being spent-- the next layer is about how do we pay for things. What new regulation is coming down the pike? You look at some of the names that are being discussed for the SEC chairmanship, the director of the CFPB, the consumer agency. What's going to be on an antitrust agenda? Those things do take time.

And as those headlines start coming into the market, you could see some volatility. You could see some weakness. But right now, people don't want to kind of get ahead of that. Recognize that for the near to medium term, things are pretty positive from a market perspective. Once we get to a discussion of who pays for it, that's really where we could see a little bit of more volatility. And I don't know if those are going to be buying opportunities or not. We need to hear a little bit more from these regulatory agencies, especially as these key Cabinet members go through their confirmation hearings.

JULIE HYMAN: Hey, Ed, it's Julie here. I want to pick up on that because whether you're talking about regulation, or, in your words, how we're going to pay for it if that is going to mean higher taxes, when has that meant a sustained decline in profits and/or in markets. In other words, you know, we always have this sort of chest thumping, fear mongering about higher taxes the effect on corporations. We know a lot of corporations manage to pay less than their tax rate, even when taxes go up. But have we seen a sustained period in history where that has indeed been the reality that it has been a sustained problem?

ED MILLS: So, when we look at this, it really is the devils are in the details. We get a lot of headlines about the statutory rate in terms of, if that goes up from 21% to 28%. I don't think there's a lot of folks that are going to lose a lot of sleep about that. That could impact earnings. But what's going to impact earnings more over the next several years is the economic response to a COVID recovery.

What could be more impactful-- and this is where we've highlighted it especially for the technology sector-- is a provision in the Biden plan that says if you are a company with more than $100 million in profits, there is going to be a new minimum tax rate of 15%. So some of these corporations who have done a good job of avoiding pay anywhere close to the statutory rate could see a very different tax structure if what is proposed gets implemented.

So, I'm not telling anyone to kind of make a lot of moves related to potential tax reform concerns just yet. But I do kind of always want to make sure folks understand some of the risk that is on the horizon. Being a Washington policy analyst is usually about telling you what are the risks that are coming down the pike. Right now, it's pretty positive. But we always have to be mindful of what comes next.

KRISTIN MYERS: We're going to keep this conversation going. However, I do want to call everyone's attention to what we are seeing on screen in some of these live images. We have congressional leaders here presenting gifts to President Biden and First Lady Dr. Jill Biden right now.

JULIE HYMAN: And Ed, I'm going to jump back in and also bring up the idea that when you look at history and you try to examine how stocks have done under different administrations, there were some research out from Brian Belski over at BMO this morning where he went back to 1932, and he said the S&P has averaged an annual gain of about 10.4% with a Democratic president and a 6.6% gain with a Republican president.

And there's especially a divide in the first year of office, where the Democrats really-- where a Democratic presided market really outperforms that of a Republican one. How much are we to make of that? You know, we love looking at these stats, right? But obviously, as someone famous once said, past performance does not predict future performance. So, you know, how much attention should we pay to that kind of a figure?

ED MILLS: Yeah, I mean, is correlation causation? And what we did here at Raymond James is we looked even deeper and said not just who's in the White House, but what is the makeup of Congress in the White House combined. Generally speaking, that's where you see markets respond pretty well to divided government. But it was remarkable that almost regardless of who was in the White House, who had control of Congress, on the whole, the market is up during the four years of almost every single presidency.

So, when I am looking at kind of the Washington DC risk to the market. I usually see it more in terms of asset allocation, seeing individual industries or individual companies that are coming under scrutiny, new regulation. What I told clients at Raymond James heading into the election, people on either side of the aisle who was very fearful of, if this was the outcome, then this was going to happen, I told them to stick to their plan, that the market really wanted to have a clear election outcome.

I think that's what we got, despite the inability to really get that certified and move on from a political perspective. But the market had moved on. And so, DC's important. DC sets a macro environment. But generally speaking, if you tried to time this market around individual things that are happening in DC, it's very difficult and usually is an opportunity to lose more money than you make.

KRISTIN MYERS: I want to thank our panel for this discussion. We have Yahoo Finance's Julie Hyman, as well as Ed Mills, Raymond James Washington policy analyst, for joining us today.