What Was the Stock Market Like When Biden Took Office?

The period surrounding January 20, 2021, marked a significant transition for the United States. The financial landscape was characterized by ongoing recovery efforts from the 2020 global pandemic. Businesses and consumers navigated evolving conditions, with industries adapting to new realities. The climate reflected cautious optimism about vaccine distribution and lingering uncertainties about economic stability, setting the stage for market activity as a new administration took office.

Major Stock Market Indices

The primary U.S. stock market indices exhibited notable performance around the time of the presidential inauguration. In the fourth quarter of 2020, major U.S. stock market indices saw significant gains. The S&P 500 returned 12.1% for the quarter and 18.4% for the year. The Dow Jones Industrial Average (DJIA) was up 10.73% in Q4 and 9.72% for the year, while the Nasdaq Composite ended 2020 up 43.64% due to strong technology stock performance.

U.S. equities generally rose in January 2021, with the S&P 500 and Nasdaq 100 hitting all-time highs. On January 20, 2021, inauguration day, all three major indexes closed higher. The Dow Jones Industrial Average surged 0.8% to an all-time closing high of 31,188.38. The Nasdaq Composite also reached an all-time high, appreciating 2% to 13,457.25, driven by large-cap technology stocks. The S&P 500 advanced 1.4% to 3,851.85, marking its own all-time closing high.

This positive momentum continued into Q1 2021, with the S&P 500 gaining 6.17% and the Dow Jones Industrial Average increasing 8.29%. The Nasdaq 100 saw a more modest gain of 2.78%. Small-cap stocks, represented by the Russell 2000, significantly outperformed larger benchmarks in January 2021, gaining 5.0%. This indicated a rotation in market sentiment, with smaller companies showing strength.

Key Economic Context

The broader economic environment influencing the stock market at the beginning of 2021 was shaped by the ongoing recovery from the pandemic.

Real Gross Domestic Product (GDP) increased 4.0% in Q4 2020, following a 33.4% increase in Q3 2020. For the full year 2020, real GDP decreased 3.4% compared to 2019. In Q1 2021, the economy expanded at an accelerated rate of 6.4%, building on previous growth.

Inflation rates remained relatively low but showed signs of increasing. The annual inflation rate, measured by the Consumer Price Index (CPI), was 1.4% in 2020. By January 2021, the CPI for services grew 1.3%, and the overall inflation rate was 1.7% in February 2021, rising more sharply in March.

Employment figures reflected the pandemic’s impact and recovery efforts. The U.S. unemployment rate reached 14.8% in April 2020, easing to 6.7% by Q4 2020. In January 2021, job growth stagnated, with over 4.7 million individuals receiving unemployment benefits. By July 2021, the unemployment rate was 5.4%, still above the pre-pandemic level of 3.5%.

Sectoral Performance

Different sectors within the stock market experienced varied performance around the time of the presidential transition, reflecting evolving economic conditions and investor sentiment.

In Q4 2020, cyclical sectors and those poised for recovery led the market. Energy and Financials, previously among the worst performers, improved dramatically with vaccine announcements, contrasting with Information Technology, which was the strongest sector in 2020.

This rotation continued into Q1 2021, with Energy and Financials emerging as top performers. Energy stocks gained approximately 31%, and oil prices reached nearly two-year highs. Financial services and basic materials also showed strong leadership. Conversely, Technology and Consumer Discretionary, top performers in the previous year, became some of the worst-performing sectors by the end of Q1 2021.

Healthcare and Real Estate also gained in early 2021, with Healthcare up 1.4% and Real Estate up 0.6% in January. Utilities and Consumer Staples were laggards, with Staples declining 5.2% and Industrials 4.3%. This wide range underscored a shift in investor focus towards areas benefiting from economic reopening.

Legislative and Policy Environment

Around the time of the presidential inauguration, significant legislative proposals and policy discussions began to take shape, primarily focused on economic recovery.

On January 14, 2021, President-elect Joe Biden proposed the $1.9 trillion “American Rescue Plan” to accelerate pandemic recovery. Key components included increasing direct payments, extending supplemental unemployment benefits, and providing additional funds for small businesses.

Discussions intensified after the inauguration. Draft legislation was released on February 8, 2021, and the bill passed the House on February 27 and the Senate on March 6. President Biden signed the American Rescue Plan into law on March 11, 2021. This legislation included substantial aid for state and local governments, support for hard-hit industries, and tax changes.

Beyond immediate pandemic relief, discussions also emerged regarding infrastructure investments. President Biden introduced the $2 trillion “American Jobs Plan” in spring 2021, aiming to rebuild infrastructure and revitalize the economy. The plan broadly included traditional physical assets, affordable housing, and clean energy initiatives. These early legislative efforts signaled the administration’s policy priorities for economic stimulus and long-term development.