Riding the Transition Trade

Presidents have a lot less influence on the stock market than is commonly thought (or written), but certain macro actions have clear effects.

Clearing the path to a transition is one of those, and it’s the best thing the president has done for “his” market in months.

There are a lot of ways to take this news (beyond whatever it might be doing to the First Ego):

  • In terms of what it might say or imply about the relationship between political and economic power
  • In terms of the elusive “certainty” executives and investors are always searching for
  • In terms of the conclusions everyone’s jumped to about what life will look like with Janet Yellen as (presumptive) treasury secretary

My hope is that all this heralds a tacit bargain that begins to unwind what Rana Foroohar recently described in the FT as U.S. executives’ “deal with the devil.” In essence, the new bargain should say:

  • No, the pitchforks aren’t coming out. We’re not going to dismantle capitalism in toto, and there’s still going to be plenty to go around in terms of profits and wealth. That’s the kind of “certainty” on offer.
  • However, the price — and there’s always a price — is a long-run systemic adjustment in favor of innovation, competition, and workers. If the casino is going to stay open much longer, all the action can’t remain at one table.

It’s probably safe to say that we’ll never get a better (less costly, better justified, more acceptable) opportunity to make meaningful changes than the first half of 2021. Let’s get down to business.