Stocks have soared under Joe Biden. But a JPMorgan strategist says taxes and inflation could weigh on the bull run

• Stocks have boomed during Joe Biden's first 100 days, thanks to vaccines and stimulus.
• But the "sugar hit" could be about to fade, according to a JPMorgan strategist.
• Hugh Gimber said rising taxes and inflation are two issues that could weigh on markets.

Joe Biden has been very good for the stock market.

During Biden's first 100 days, the S&P 500 stock index has delivered returns of close to 25%, JPMorgan data has shown. That's better than under any President in the last 75 years.

A large part of it has been luck: Biden was elected the same month that major coronavirus vaccines were first proven effective. But the president was central to the $1.9 trillion stimulus package that has boosted the economy and pushed markets to more record highs.

The question now facing investors is whether the rest of Biden's presidency will be so good for their portfolios.

Hugh Gimber, global market strategist at JPMorgan Asset Management in London, says the massive stimulus unleashed under Biden has been like a "sugar hit" for markets. He thinks it will last a while, powering a very strong economic recovery over the course of the summer.

But he says it will eventually fade, and investors will then be faced with major infrastructure and social security plans to digest. They will be more like a "complex carbohydrate that is going to drip into the economy's bloodstream over time."

Taxes could weigh on company earnings

One issue that might trouble investors is rising taxes, Gimber said. Biden on Wednesday proposed some sharp tax rises to pay for a $1.8 trillion American Families Plan that would expand child tax credits and education spending.

The Biden administration is proposing an almost doubling of the capital gains tax to 39.6% and raising corporation tax to 28% from 21%.

Gimber said the tax proposals in their current form would likely dent company earnings. But he said divisions in Congress means they will probably be watered down.

Gimber's US colleagues recently maintained their view that the S&P 500 will rise from around 4,190 to 4,400 by the end of the year despite potential tax hikes, thanks to a resurgent economy. And the market itself has largely brushed off concerns.

But Gimber said investors should think on a "granular level" about the impact of tax changes on companies and sectors as the plans become clearer.

Inflation might cause investors headaches

The strategist said another potential danger for investors is rising inflation - a topic that provokes lively debate on Wall Street.

"Inflation struggled to get going post the financial crisis, even with very easy monetary policy, because you had the central bank on the accelerator and the government moving back to the brake," Gimber said.

Yet things could be different this time, as monetary and fiscal policy are now working in tandem.

Gimber's colleague Karen Ward has said that inflation might rise to around 3% on average over the next 10 years, from below 2% over the last decade.

Higher inflation would make it risky to hold government bonds, which tend to fall when inflation rises, Gimber said. The big tech winners - whose returns looked more attractive when inflation and yields were low - might also suffer.

But cheap and green stocks should benefit

Yet rising growth and inflation also present many opportunities, Gimber said.

In particular, the ongoing economic recovery means the so-called rotation into stocks that suffered during coronavirus should have further to run.

Companies in the finance, energy and consumer discretionary sectors are staging comebacks as investors bet they'll benefit from economies reopening.

"The move from last year leaders to laggards, the move towards value, to more cyclical sectors, that rotation has more room to run," Gimber said.

"Overall the US index has done very well already this year. But the scope for further gains looks much greater in cyclical sectors."

Gimber also said that Biden's focus on climate change should further boost the already-booming world of environmental investing.

"He knows that he wants to restart the economy and he wants to green the economy, and the climate aspects of the infrastructure bill are trying to achieve those two simultaneously."