With Joe Biden’s new elite supporters comes a new elite problem: The stock market.
Democrats have historically been dismissive of the wealthy’s worries — Biden no longer can be. The unwinding of a stock market pumped up by interest rate reduction expectations could hit Biden’s elitist supporters at the worst possible time and could be the fatal blow to a candidate already politically encumbered by his economic performance.
Democrats have historically claimed to champion the little guy. Biden styled himself as lunch–bucket Joe from Scranton — his return trip just days ago being only the most recent example. Reality is very different. Both the Democrats and Biden now represent America’s elites in income, education, and walk of life. No better evidence of this came less than a month ago in New York when a Biden fundraiser with Obama and Clinton pulled in over $26 million and attendees paid up to $500,000 for the most exclusive access.
Sharing the wealth of his new friends also means sharing their concerns about their wealth: The stock market. Democrats used to dismiss and disdain stock market performance If the stock market fell, they dismissed it as not representing the real world. If the stock market rose, they disdained it as excessively profiting off others. Not anymore. The elite’s problem is the Democrats’ problem; in particular, it is Joe Biden’s problem — and there is a lurking problem.
There are indications that the stock market is overvalued and that its rise has far outpaced the economy. The stock market’s runup has been fueled largely by the expectation of a run down in interest rates: The belief was that Federal Reserve interest rate cuts would offset the slowing economy that resulted from the higher interest rates needed to cool the inflation that Biden’s profligate policies helped stoke.
The plan was to cut rates up to three times — a process that began early in 2024. In anticipation, money poured into the stock market and it responded accordingly.
But inflation has not cooperated. Despite the Fed’s dramatic actions, it has remained stubbornly persistent. Rate cut expectations kept getting pushed back. The latest inflation report was just the most recent indication that inflation refuses to get to the Fed’s 2 percent target and expectations are now that rate cuts may not come until September and there may be only two (some have even floated the idea that there may be none).
As a result, a waiting (and a worrying) game has begun for Biden. Can the stock market hold onto its gains for longer without the impetus that drove them? With their impetus delayed — or even in doubt for 2024 — does the money that flowed into the stock market flow back out in its prolonged absence?
The financial markets have already started hiking the rates they control. Investors in the stock market may behave accordingly by pulling money out believing that stocks will come down without the rate cuts or simply moving into the safer environment of the market’s higher interest rates.
That the economy can support the stock market’s high valuations without rate cuts is hardly clear. Already the economy has been slowing. Real GDP growth fell from 4.9 percent in 2023’s 3rd quarter to 3.4 percent in 2023’s fourth quarter. The Congressional Budget Office’s March projection for 2024 real GDP growth was 1.8 percent.
Biden is already perceived as performing poorly on the economy. According to Real Clear Politics’ national polling average, 58.2 percent of Americans disapprove of his handling of it. As bad as this is, it could be worse. Somehow, 39.2 percent of Americans do approve of Biden’s economic performance, which is perilously close to the 37 percent of voters who identified as Democrats in 2020 exit polling.
What would happen if the elite — whose wealth largely insulated them from inflation’s direct effects — suddenly began to feel it in the form of a stock market drop just months before the November election? For over three years, the rest of America has suffered from inflation stoked by Biden’s profligate policies. If the elite finally feel the same effect, it would be the worst possible thing at the worst possible time for Biden, because, for Biden, the elite is his last bastion of support.
J.T. Young was a professional staffer in the House and Senate from 1987-2000, served in the Department of Treasury and Office of Management and Budget from 2001-2004, and was director of government relations for a Fortune 20 company from 2004-2023.
