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These Forces Offer Biden Administration a ‘Goldilocks' Market Scenario in 2021: Invesco

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In just over two months, President-elect Joe Biden will assume office.

And, while the market has been volatile in recent weeks, Kristina Hooper, chief global market strategist at Invesco, sees a number of tail winds that could set the foundation for a positive first year under a new executive leadership.

"I think of it as sort of like a Goldilocks environment in that what we feared, which was a blue wave, didn't come to fruition. In fact, what we have is likely a scenario, a very likely scenario, where we don't get any tax hikes which I believe was the biggest fear that investors had going into this election. So that's a real positive, but we do get a return to a more traditional trade policy which should also be positive for investors," Hooper told CNBC's "Trading Nation" on Friday.

The potential for a split congress – a Democrat-controlled House and Republican-led Senate – has given investors a degree of certainty that there will be no sweeping changes to the tax code. However, control of the Senate has yet to be determined by two runoff races in Georgia. The current divide is 50-48.

Hooper also sees Biden's likely command over the coronavirus pandemic through federal spending and support and progress toward a vaccine as two positive developments for the market.

"I do believe a vaccine is a game changer," said Hooper. "While we're unlikely to see great strength in the economy as we start 2021 – because we are of course fighting Covid-19 and it's getting worse, not better –  we do know there's a light at the end of the tunnel, and that light is fairly close based on what medical experts have told us. So that at some point during 2021, when we get broad distribution of this vaccine, we're likely to see a very significant change. This could be the ultimate coiled spring."

Pfizer and BioNTech announced last week that their vaccine had shown efficacy of more than 90%. Pfizer CEO Dr. Albert Bourla called the breakthrough the "most significant medical advance in the last 100 years."

Hooper adds that the dual forces of federal stimulus and an accommodative Federal Reserve should support the economy and fuel the stock market – and offer Biden better footing than the last time he ascended to the executive branch.

"The situation is better than what we saw during the global financial crisis [of 2008/2009] where we had a lot of monetary stimulus and virtually no fiscal stimulus. At least there's been more fiscal stimulus, although we've missed out on some important fiscal stimulus in recent months," she said.

While Hooper said it's unlikely the Biden administration can corral support for a stimulus bill as large as the $3.5 trillion Heroes Act passed by the House in May, she does see a package potentially as large as $1.5 trillion. The Fed should fill the gap, though, and bolster markets, Hooper predicted.  

"Right now, the biggest driver is monetary policy, which is good for markets since that should have a much bigger impact on markets," she said.

Biden is scheduled to be inaugurated as president and Sen. Kamala Harris as vice president on Jan. 20, 2021.

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