Much like the entire year of 2020, the United States' Presidential election has been one for the history books. While Joe Biden was announced as President-elect over the weekend, incumbent President Trump seems unlikely to concede the Oval Office without a fight. Should Trump take matters through the Courts, we expect short-term noise and distraction. In the end, the 46th President has been elected and will be inaugurated on 20th January next year. It's important for investors to look through any short-term hyperbole, keeping an eye on the longer term.
While most of the focus has been on the Presidential race, the battle for control of the Senate has been just as crucial. While counting is still ongoing, it appears the Democrats will retain control of the House of Representatives and Republicans will hold (a potentially slim) majority in the Senate. We don’t expect to be in a 'Blue Wave' scenario whereby Democrats control all three levels of government. The likely result is an outcome preferred by markets as it likely removes the prospect of extreme policies being enacted by either party. The status quo has effectively been retained.
Under a Biden Administration, we would expect the following approaches:
- Fiscal stimulus is highly likely to be the first order of business with the country desperate for support as it navigates a heavy third wave of COVID infections. However, under a split Congress, the quantum of spending is likely to be below the Democrats' lofty US$3 trillion target;
- Sweeping tax changes including Biden's proposed reversal of Trump's corporate tax cuts are far less likely: clearly positive news for US corporate earnings;
- The increased regulation or even forced break-up of 'big tech' (think Amazon, Facebook, Google) also appears unlikely. While both Democrats and Republicans are concerned about the major players' market power, the last few years have proven they have opposing views on how to approach the issue;
- Foreign policy is likely to take a calmer, more diplomatic approach. While both sides of politics remain extremely wary of China's rising power, Biden may look to open dialogue with the Chinese Government;
- Infrastructure spending is likely to enjoy a multi-year funding boost. However, Biden is less likely to achieve many of his "green" energy targets with Senate Republicans expected to resist the focus on renewable energy adoption and reducing greenhouse gas emissions while strongly defending the country's onshore oil & gas industry. Instead, we would expect electricity, water and transport infrastructure to be the prime beneficiaries.
Despite handovers between previous Administrations taking a cooperative approach, we remain wary that the transition from Trump's team is far less likely to be smooth. This could make it difficult for Biden to hit the ground running on a number of key domestic and foreign issues.
Further, once the final make-up of Congress becomes clear, markets will turn their focus to other major global issues. Europe is experiencing a heavy third wave of COVID infections, resulting in another round of restrictions. The successful development of a safe vaccine remains a work-in-progress and so long as this remains the case, the world will remain stuck in second gear: unable to fully resume movements and trading activities.
It is for these reasons we continue to take a cautious and prudent approach to portfolio management. We will continue to monitor developments, looking to invest only when we have clarity and are able to participate at opportune times.