a market welcoming the return to normalcy

 Written: 20/11/09 07:25 GMT FXTM Senior Market Strategist Hussein Sayed 

The U.S. presidential election is finally over. Joe Biden was elected the 46th president of the United States with promises of political normalization and an unpredictable end to four years. Global stock markets are welcoming the election results, with the MSCI All-Country index rising to a record high and the S&P 500 futures index rising 1.7 percent from a 7.32 percent rally last week. 

It's still unclear which party will take control of the U.S. Senate, but markets are reacting as if Republicans will continue to dominate the Senate. If this is true, tax rates are likely to remain low and interest rates will remain near zero for a long time. This is the best environment for growth stocks such as technology. That's why tech stocks continue to grow at a high rate, leading the stock market. 

Expectations for a large-scale stimulus package have been lowered and the yield on U.S. bonds will continue to be under downward pressure, with only the Fed to lean on. The DXY index has fallen to its lowest level since early September as the dollar has not been helped by the spread of bond yields. There is also a significant movement against the yuan. The yuan has been trading at its highest level since June 2018. The background is based on the expectation that new President Biden will be conciliatory toward China, or at least have a predictable policy.      

Reduced trade conflicts and low U.S. interest rates are fueling the flow of money into the sensitive currency. The Australian dollar is trading near 0.73, and the New Zealand dollar has risen to a 19-month high. 

Assuming there is no surprise event to disrupt market joy, the upward trend is expected to continue until the end of the year or later. At the end of the party, investors will realize too high a valuation and still a health crisis to address.  

Sky-high value can be justified in the short term, given that there are no other alternative means of investment. In terms of net valuation, stocks are still cheaper than bonds. However, determining the direction of asset prices and the pace of global economic recovery in 2021 is a health crisis. Gold can be a good hedge against uncertainty and it will not be surprising if gold prices rise above $2,000 by the end of the year. 

Given the current situation, no matter what policy new President Biden takes, it seems unlikely that the return on assets over the next four years will recover to the level during Trump or Obama's tenure. Asset prices already reflect a complete recovery and need a surprise to maintain upward momentum.