The Joe Biden effect - A glimpse on the new market

By: King San Josè- Santos, RFP, MIFC

Chief Financial Planner, San Josè & Partners

Member, International Financial Consultant, USA

As of November 8,2020, we now have a new American president, Joe Biden.

It allows US to change course from their old trade policies from a conservative approach , (seclusive and conservative) to a more open and inclusive approach with their trading partners.

Tax Policy - A drive for rebound

Bidens promise to increase taxes on corporation might give a direct impact to the market, however without a Democratic senate ,the chances having an increase may not happen until we see a shift in the senate.

Bidens Tax Policies

* 15% minimum tax on all corporate income

* Corporate tax will be raise from 21% to 28%

* Top individual income tax bracket to 39.6%

Market Shifting " risk on" due to stimulus

We might see a big stimulus from day 1 of Biden starting with the HEROES act where $3.5 Trillion dollars might be injected to the market. However, due to long term tax policies plus issues such as covid 19 and trade war with China, the rebound might be on the short term horizon.

How to Trade the Market : Let's make it simple.

Technical on US Dollar

Key data we follow.

1.2043: 1st resistance

1.25719: Major resistance.

For the next few months, we might expect market to go on range as they find key supports and wait for major issues such as covid 19 vaccine and change of strategy in dealing with China's trade war. Tax policies might be also a key factor where institutional investors might follow for long term.

We now see increase of volume in the market. The institutional traders may use the resistance level to unload and realize some gains as market started to improve since mid-march . We might consider buying on corrections as the risk : reward ratio improves. Be mindful that the market is still on the downtrend.

We might consider taking a cue from RSI below 32 level as the market started entering in the the overbought area for the short term.

In Summary,

Market is still on the downtrend.

Consider buying on correction as Risk - Reward ratio improves and the market enters the resistance level. Watch out for the key levels as it may trigger changes on the trend of the market.

Technical on PSEi

Taking a cue from US Dollar:

Peso- Dollar Exchange rate mostly has an inverse relation with PSEi. A weaker peso may hurt business with dollar denominated debts , not only result to currency losses but also increases their obligation.

The demand and supply of the dollar are affected by the inflow and outflow of foreign funds in the stock market. Based on data, the correlation between USD and PSEi went high to about 82% in 2015. Analyzing historical data, market around 8,000 may help the peso find its support level.

Key Levels:

8000 level is one major key factor as market tried to go higher 3X since 2015. We consider this level as major resistance . Fundamentally, unemployment is still high, market is still limited and other issues such as covid 19 vaccine are still on the ropes.

We might expect a rebound to 7000 level while having a slim chance reaching 8000 to 9000 level.Market could reverse and return to 5000 level as market wait for good economic data's and wait for the vaccine of covid19 that will help the market to fully open.

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Disclaimer

All opinions expressed by the analysts quoted here are solely their opinions and do not reflect the opinions of Insular life, San Josè and Partners, their parent company or affiliates.

You should not treat any opinion expressed on this website as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion.