Stock markets have responded well to Joe Biden’s election victory. There’s a reason for this, shown in my chart.
It shows the dividend yield on the All-Share index plotted against an index of global policy uncertainty compiled by Scott Baker, Nick Bloom and Steven Davis. There’s a huge correlation between the two, of 0.68 since Baker, Bloom and Davis’s data began in 1997. High policy uncertainty means a higher dividend yield and therefore lower share prices. Since Mr Trump’s election in 2016 such uncertainty has been much higher than in the past, to the detriment of equities. The election of Mr Biden raises the hope that uncertainty will fall back, thereby boosting prices.