First glimpse of the Biden market
Investors made clear what companies they think will be winners and which will be losers in President Joe Biden's economy on Wednesday, selling out of gun makers, pot purveyors, private prison operators and payday lenders, and buying up gambling, gaming, beer stocks and Big Tech.
What happened: Private prison operator CoreCivic and private prison REIT Geo fell by 7.8% and 4.1%, respectively, while marijuana ETF MJ dropped 2% and payday lenders World Acceptance and EZCorp each fell by more than 1%.
- On the other side: Penn National gained 5.5% with DraftKings up 3.7%, and the cigarettes, booze and gambling ETF VICE gained 1.6%. The Nasdaq 100 rose 2.3%.
Why it happened: Biden issued an executive order freezing the OCC's fair access rule, which required banks to service all companies, including those in industries such as private prisons, chemical companies and gun makers.
- And Trump appointee Kathy Kraninger resigned as director of the Consumer Financial Protection Bureau, giving Biden the all-clear to nominate FTC Commissioner Rohit Chopra, an acolyte of Sen. Elizabeth Warren who worked with her on establishing the CFPB, as its next director.
That was followed by a report from the WSJ that Biden was set to name former Obama Treasury official Michael Barr as Comptroller of the Currency, the major regulator of big banks.
- If true, "Barr would be part of a pattern where Biden selects moderates for the cabinet and other top jobs but chooses progressives for second-tier posts," notes Jaret Seiberg, financial services and housing policy analyst for Cowen Washington Research Group.
- "Issue for us is whether that trend continues through to summer when Biden must pick a new vice chair for supervision at the Federal Reserve and to fall when he must pick a new Federal Reserve chairman."
The big picture: Biden has set out an ambitiously progressive agenda that is in line with the policies he pitched when competing for the Democratic presidential nomination against far-left-leaning Sens. Bernie Sanders, Kamala Harris and Warren.
- That's in contrast to the moderate centrist he pitched himself as during the general election campaign against Trump.
What to watch: Seiberg adds that he's expecting additional economic policy orders from Biden today. That could include a campaign proposal to provide $15,000 in tax credits to first-time homebuyers.
- Such a policy would pour gasoline on the already blazing housing market, as record-low mortgage rates have already brought down the monthly cost of homeownership significantly.
- For first-time buyers who only need to put down 3% on a conventional mortgage, $15,000 would provide the down payment to purchase a $500,000 home.
Biden also unveiled an executive order directing the Department of Housing and Urban Development and the Federal Housing Finance Agency to refrain from foreclosing on borrowers who are not repaying loans backed by government loan guarantors like Fannie Mae, Freddie Mac and the rural housing service.
- That will help keep housing stable through the pandemic, but will also likely add to the constraint on housing supply and further push prices higher.
Biden also ordered the Department of Education to freeze the repayment of government-issued student loans through Sept. 30.
Watch this space: Halting student loan payments should free up additional income for borrowers, but will also likely juice the housing and stock markets.
Watch this space too: Biden's expected big bank regulator Barr would be yet another leading official with cryptocurrency cachet, joining SEC chair nominee Gary Gensler.