On the 3rd November the American electorate, or at least enough of them to give Joe Biden his victory, cast their votes in record numbers and made judgement on the 4 years of the Trump Presidency. The hoped for “blue wave” that would have gained Biden control of the Presidency and Congress has failed to materialise. A divided Government will hamper the new Presidents ability to bring forward and pass a policy agenda that would have looked significantly different to what Donald Trump would have presented. The split congress will be viewed as a positive by certain corporates in America, as a Democrat controlled White House and Congress was seen as a potential headwind for certain areas of the economy, including Big Tech.
The important caveat is the short-term impact and volatility that legal challenges brought by the Republicans might have on markets. The hope was that we would have a conclusive victory to be able to build from, this unfortunately has not been the outcome.
The first priority will be to add stimulus to the American economy. President Biden will try to achieve this with higher Federal spending on entitlements, by implementing the long overdue US infrastructure overhaul and by moving towards a greener economy. All these steps are intended to support the poor, create jobs and to try and re-balance the economy from the distortions caused by COVID-19 related unemployment.
Biden has a completely different outlook about COVID-19 and how the virus should be dealt with and it will be interesting to see how he is able to unify the country to allow a different strategy to be adopted. Only time will tell if he is successful or not but strong leadership is required to turn the tide of rising infection rates and a spiralling death toll.
Looking forward, the Biden White House is expected to operate a multilateral approach to dealing with China and the issues that have created tensions between the two countries during the Trump Presidency. A more supportive approach towards NATO and other Multinational agencies is also expected to be a feature of how Joe Biden leads America to interact with the rest of the world. Overall a more recognisable and predictable leadership style is what the world should expect from the President at this point, where risks, both economically and from a public health standpoint are at heightened levels.
Our expectation, from an investment standpoint, is that the implementation of a stimulus package will underpin sentiment which has already been positive, due to the plethora of above expectation financial results posted by US companies in the 3rd Quarter. Initial market reaction to the Election result should be taken with a pinch of salt as different sectors of the economy will react to the Biden victory in different ways and a more accurate picture will take a while to form.
Our overall view in summary therefore is that the certainty of who the new President is, allied to fiscal stimulus and a split Congress that will moderate higher personal and corporate taxes, is a steadying combination for the US economy and should be market positive.
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