While markets may have been nervous of Joe Biden’s promised tax increases for business and his calls to strengthen regulation for US tech firms, the reality is that a change in the presidency was priced into equity markets weeks ago, as investors unpicked and accounted for policy changes.
In the US congressional elections, Democrats are on course to retain control of the House of Representatives while Republicans look set to hold a wafer-thin majority in the Senate, which means president-elect Biden is unlikely to be operating from a position of strength. This is perhaps the most market-friendly result and global stocks have reacted accordingly this week.
January run-offs in both Georgia Senate races may yet tip the balance of power in the Democrats’ favour, but for the moment, the political landscape in Washington is heading towards stability, a promising step towards a much-needed US stimulus bill.
Biden’s election promises
We will be keeping a keen eye on the following election promises as the next few weeks and months progress:
Renewing international trade agreements: While Biden largely agreed with Trump’s view on an over-reliance on China, he has indicated he would like to improve relations with NATO allies and form coalitions with other democracies. Investors will be hoping these trade negotiations improve the strength of the US dollar, and the fortunes of US and international businesses.
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Increase taxes for business: Biden proposes to withdraw Trump’s tax cuts for businesses, redeploying this money into education and increasing social security payments and the minimum wage. This move will almost certainly make investors nervous, especially if the US Dollar continues to weaken.
Lead the way in the green economy: Biden’s pro-climate change pledges, such as investing $2 trillion in green energy, $1.7 trillion in green technology, and re-joining the Paris Climate Agreement, will create jobs and generate revenue in years to come as innovative technologies are exported around the world. There could be some exciting investment opportunities as a result. In addition, Biden’s infrastructure plans for a national fleet of electric vehicles will be one to watch for the automotive industry.
Fairer healthcare: We expect there to be a focus on fixing and expanding the Affordable Care Act, plus direct negotiations for a subset of drugs for Medicare and increased transparency – both of which will impact large pharmaceuticals. Widespread funding for coronavirus testing, vaccine distribution and purchase of personal protective equipment could also provide economic stimulus.
The Sanlam View
Ahead of the election, we reviewed holdings that were exposed to increases in tax under Biden, and we took steps to mitigate this risk some months ago. Other than that, we didn’t make any significant changes to portfolios in favour or against a particular outcome, and we don’t plan to make any knee-jerk reactions in the wake of this result.
We continue to construct portfolios that are well diversified both geographically and across different asset classes, focusing our investments on well-run businesses that are less dependent on the economic cycle and that can deliver sustainable returns given the wider global economic outlook.
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