Earlier this week, the United States began a new chapter. Following the November election, Joe Biden was sworn in as the 46th president of the United States.

Although Biden enters office with the U.S. economy still reeling from the coronavirus disease 2019 (COVID-19) pandemic, he has a number of tailwinds at his back. The Federal Reserve has pledged to keep lending rates at or near historical lows, and Democrat control of both houses of Congress makes it more likely that additional fiscal stimulus is passed. With both monetary and fiscal policy lighting a match under the U.S. economy, it's quite possible we could see a raging bull market emerge.

But as investors, we're also keenly aware of how common it is for stock market crashes and corrections to occur. For example, the benchmark S&P 500 (SNPINDEX:^GSPC) has undergone 38 corrections of at least 10% over the past 71 years. That's an average of one sizable move lower every 1.87 years.

What we often don't know ahead of time is what's going to cause a crash or correction. As we look ahead to what a new administration in Washington might mean for the U.S. economy and stock market, the following three threats loom largest for the Biden bull market.

A shadowy silhouette of a bear superimposed atop a financial newspaper with stock quotes.

Image source: Getty Images.

Historically low lending rates spoil businesses and consumers

For more than 12 years, businesses and consumers have enjoyed historically low lending rates.

On the corporate side of the equation, low borrowing costs have allowed growth stocks to expand their workforce, spend aggressively on innovation, acquire other businesses, and even accelerate capital return programs. For instance, tech kingpin Apple (NASDAQ:AAPL), which is usually flush with operating cash flow, has been borrowing money at exceptionally low rates to repurchase its own stock.

Meanwhile, consumers have used historically low lending rates to pile on debt. This includes mortgage debt, which is booming now that mortgage lending and refinance rates are at all-time lows. According to the Federal Reserve Bank of New York, mortgage debt in the U.S. swelled to $9.86 trillion by the end of September 2020. 

The issue is that lending rates can't stay this low forever. When they do begin to increase, recency bias is going to come back to bite the U.S. economy and stock market quite hard.

Borrowing rates could rise a full 100 basis points (1 percentage point) and still be well below norms. But recent history has shown how spoiled businesses and consumers have become with low lending rates.

30 Year Mortgage Rate Chart

30-Year Mortgage Rate data by YCharts.

As you can see in the chart above, the 30-year mortgage rate has had two instances over the past decade when rates rose by 100 basis points relatively quickly (2013 and late 2016). In both of these instances, mortgage originations and refinancing activity fell off a cliff and declined by more than 50%.

This is just one example. If the Fed begins raising its federal funds target rate in 2024 to ensure the U.S. economy doesn't overheat, the reaction to higher lending rates could be severe. Businesses and consumers have been spoiled for so long with favorable lending rates that they'll struggle to take advantage of rates that are historically low, but not "low" based on what they might have seen a few months ago or perhaps one or two years ago.

Suffice it to say that recency bias as it relates to lending rates is a big threat to the Biden bull market.

A key fob with a car charm lying atop a pile of one hundred dollar bills and auto loan docs.

Image source: Getty Images.

An auto loan delinquency deluge floods the financial sector

Another potential concern is the steady rise in auto loan delinquency rates.

I'll freely admit that I've been sounding the horn on auto loan delinquency rates for years. Those cries have thus far been unwarranted. However, auto loan delinquencies are heading in the wrong direction. They've been rising steadily for the past nine years, well before the COVID-19 pandemic.

Back in August, TransUnion had auto loan delinquencies pegged at 3.1%. But this figure doesn't tell the whole story, because it's not accounting for the 6.2% of auto loans in forbearance in July and 4.3% in August. By comparison, the auto loan forbearance rate was just 0.5% in the same period of 2019. Lenders have been accommodative to COVID-19 job losses and income issues throughout much of 2020, but these waivers aren't going to extend forever. 

The good news here is that auto loans pale in comparison to the mortgage market. With $1.2 trillion in outstanding loans, there will be no tales of economic collapse like in 2008-2009. But a delinquency rate of, say, 5% to 6% is more than enough to put a serious dent in financial stocks that are already contending with higher mortgage and personal loan delinquencies.

Though the nation's money-center banks appear to be well-capitalized, investors shouldn't overlook the possibility of the auto loan bubble bursting and the financial sector being forced to go on the defensive. This would put a serious crimp in the Biden bull market.

A person holding a black binder labeled "tax reform."

Image source: Getty Images.

Politics weigh on growth

Don't overlook the possibility that Biden's tax plan causes Wall Street to stumble.

The Biden administration has a long list of tasks ahead of it. Getting the coronavirus pandemic under control and vaccinating as many Americans as possible tops that list. Since this won't happen overnight, it's also imperative that Biden and Congress get aid to American families and businesses. This is all going to come at a high cost (trillions of dollars), which means additional federal income is needed.

During his campaign, Biden laid out at least a dozen major tax changes he'd like to see implemented. Among these changes was an increase to the peak marginal corporate tax rate from 21% to 28%. In 2018, the Tax Cuts and Jobs Act (TCJA) lowered the corporate tax rate to an eight-decade low of 21% from 35%. Biden's plan merely recoups half the rate cut passed along by the TCJA.

While there's no question this extra revenue is going to be needed, higher corporate tax rates could reduce operating earnings by around 10%. The most noticeable difference is that we could see a sustained drop-off in share repurchases.

Companies like Apple that have been repurchasing their stock are reducing their outstanding shares and, in many instances, providing a boost to their earnings per share. This makes publicly traded stocks more fundamentally attractive to investors. With fewer share repurchases, earnings growth could slow dramatically -- especially for S&P 500 companies.

In other words, politics could be the Biden bull market's undoing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.