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Why 2021 could be a tough year for investors

Matt Maley, Chief Market Strategist at Miller Tabak & Co joins Yahoo Finance to break down how the presidential election will impact investors' finances in 2021.

Video Transcript

JULIE HYMAN: Matt, it's good to see you. As you look at the sort of technical levels that I know that you're watching right now, what is that telling you about where we are for the S&P 500? Because I think you're watching a support level there, unless we're well above that now after the past couple of days. I don't know.

MATT MALEY: Well, it does look like the market's going to open with this morning the way the futures are trading. We'll trade above, relatively well above that level. But that 3,237, that was the lows back in September. And a drop below that level, we've already moved below the trend line going back to the March lows and we're trying to get back up to that level. So if we get below the trend line and then a key lower low, that's definitely going to signal a change in the intermediate term trend.

So we're definitely watching that and we'll just have to see how the next few days go. One of the things I was thinking going into this election is that, geez, the market's right near its highs. It's kind of got no, how much higher can it really go? But last week's pullback, if you combine the previous week, about an 8% correction. That gives us a little bit more wiggle room for any kind of disappointment.

BRIAN SOZZI: Matt, if I read your morning note correctly, you don't seem to be in the camp that a blue wave is going to send the stock market ripping higher. Why is that?

MATT MALEY: I just don't. I mean, initially we could get some things because people are talking about, oh gosh, we're to get all this fiscal spending, it's going to be unbelievable and the economy is going to take off. The problem with that, though, is if you go back in history, the vast majority, at least the last 40 or 50 years, the vast majority of new presidents when they come in, they, yes, they bring in their new programs and they have a mandate. They say, we've got a mandate, we're really going to push for some great things through and they do. And they announce these big programs.

The thing is though, they back end load them. Now the fiscal program they're talking about doing now, that's kind of an additive one. That'll be separate. And we will get some.

BRIAN SOZZI: Matt, Matt, in this case, if they back end load it, that might be mean Biden tax hikes.

MATT MALEY: That might be what?

BRIAN SOZZI: Might move Biden tax hikes.

MATT MALEY: Well, yeah, they're going to get, we're going to get the tax hikes right away. That's not good. And the fiscal stimulus is going to be all back end loaded. So you're not going to get, you look at the way, you look at Republicans or Democrats, except for Trump, who front end loaded his fiscal programs or all his programs, whether it be tax cuts, deregulation, et cetera, he front end loaded it and he had nothing left when the pandemic came along. OK?

So it's impossible, it's very, very hard to keep that the economy thriving for four years. What these presidents do. They come in, you look at the stock market, the first few years of the last few presidents before Trump, it hasn't done all that well. And then in the third year it does really well and they get re-elected. Guess what happened. Trump didn't do that, he didn't get re-elected. George H.W Bush didn't do that, he didn't get re-elected. The people who do that do get re-elected, and I think that's what the new administration will do, assuming Biden wins.

Even though it'll sound like that they're going to be this huge fiscal spending, it's mostly going to be in the third and fourth year. I don't want it to get too alarmed, but there's a reason there's a presidential election cycle. It's not just out of coincidence that the first year is the roughest year and the third and fourth years are the best years. The reason is, because usually the new administration comes in and sets up their, the boosting their programs to boost the economy in the second half so they can get reelected.

MYLES UDLAND: And Matt, we're running up against the end of, I think probably most of your client conversations have been about for the last four months, five months, six months, all about the election, and just thinking about that period of time, do you have a sense among your client base, folks that you're talking to on how they think this thing's going to break?

MATT MALEY: Well, it's, I think most people are worried that, well, most people are worried that we get a blue wave, I'll be perfectly honest with you. I know, because the market, really, the market was rallying. That's why people started saying, hey, a blue wave's going to be great rather than really putting as much thought into it, to be honest with you. So they were reacting to the market rather than putting through the narrative. Most of the institutional customers that I talked to, including some of the biggest in the world, they're really worried about a blue wave and that it could cause a significant correction of even 20% or more.

I don't, which would I get be a bear market. But I don't think it gets that much, because if the Fed is out there. But I think the Fed's providing a safety net rather than really trying to push the market higher. Because usually when they provide all this liquidity, the market is cheap and oversold. Now it's expensive and overbought. They're going to be a little bit careful. They don't want to cause another bubble.

JULIE HYMAN: Matt, we obsess over how stocks do under blue and red administrations, yada yada yada. At the end of the day, how much is the president really matter, who the president is, really matter to the economy when you weigh all of the factors that go into economic growth? Where's who the president is in that calculation?

MATT MALEY: No, you're, well, I think what you're inferring, and I think is right, is it doesn't matter. And if you look at it presidencies or presidents' administrations over time, the Democrats actually tend to do a little bit better. Now we do also have, the timing has a lot to do with it as well. I mean, you look at Obama came in after the economy, the stock market had gone down 50%. When Clinton came in, the market have been down and we'd gone through that early recession of 1992 during the election year. That kind of helps.

But the point is, the cycles tend to be, economic cycles kind of have lives of their own rather than direct impact on what the president can do. They do try to fudge it, like I said, with their policies to kind of back end load things. But you're right. I think we got to look at the really where the markets, the market, most importantly, where is the market? Is the market cheap or expensive? It's expensive right now, and that's why I'm much more cautious in 2021 than I think a lot of people seem to be.