Joe Biden’s Presidency Impact on Financial Markets
1. The love saga of stock market & Biden presidency
The election of Joe Biden has brought in good news to the investors. The S&P 500 index rose 14.3% from Nov 3, Election Day, to Jan 20, inauguration. CFRA Research reported that this is the record highest gain between the period of election and inauguration day since World War II for any first-term president. The events of Jan 6, Democrats’ Senate victories, Trump supporters’ attack on the US Capitol Building, and some Republicans’ statements against Trump reduced investors’ concerns about the violent transfer of power. “Ironically, Jan. 6 and the rioting at the Capitol really changed things; and the market took off,” said Hilary Kramer, chief investment officer for Kramer Capital Research. Up to now, the positive effect of Biden on the stock market indicates good fortunes for investors in the coming months. CFRA’s past data shows that, on average, the S&P 500 climbs 2.1% during the first 100 days of a first-term Democratic president as compared to a Republican first-term president.
2. Biden’s agenda on growth, stocks, and interest rates
The stimulus plan of Biden has already given a boost to the stock market. It is further expected to escalate economic growth, increase interest rates & give new highs to the stock market. But it is worth mentioning that the plans of the new president are not risk-free. Sooner or later, inflation and interest rates can put a dent in stock market gains. It is anticipated that the agenda put forward by the Biden administration will lead to rapid economic growth, stable stock market returns & an increase in interest rates in the first twelve months. The USA’s 46th president has presented a $1.9 trillion relief package, speed up the vaccinations & made funds available for government bodies. Wells Fargo Investment Institute
has moved up its projections for growth, interest rates, and stocks based on enormous fiscal spending expectations than under Republicans.
3. Market impact
As the shift from growth stocks has already begun, Stimulus policies announced by Biden could
speed up the market rotation to cyclical stocks.
4. A President in difficult times
The First 100 days of Biden’s presidency could cause short-term market volatility as an outcome of Democratic control of House & Senate and his policies to fight the pandemic. In the longer term, an increase in taxation is a certainty. The Biden administration’s current focus will be the provision of the stimulus package to give relief to pandemic-hit America.
5. Stimulus Package
President Biden described his stimulus package as “It will be in the trillions of dollars.” The
purpose & end goal of this $1.9tn relief proposal is to support & give a boost to an economy
that suffered a blow from pandemic as nine-million jobs were lost in 2020. The plan is to provide an
additional direct stimulus payment to Americans by increasing the $600 December payment to
$1,400 along with funds assigned for vaccinations. Stability & increased cash flow as the result of the roll-out of a stimulus package has allowed investors to make most of this period. Ninety has forecasted that a surge in the inflow into US equities may cause a significant increase in developed market bond yields, with significant cross-asset implications. The expectation of a robust stimulus package has boosted the confidence in markets. A day after the riots at US Capitol, all major US equity benchmarks hit record highs. 70% of S&P 500 reported profits, and NASDAQ 100 expanded 2.5%.
“Politics play second fiddle to economic and corporate fundamentals when it comes to setting
asset prices,” DataTrek Research co-founder Nick Colas said. “The country’s economic future
coming out of the pandemic remains promising.” For the economy & markets, this stimulus package will come at the expense of high taxes. Even though the increase in taxation is typically expected from a democratic president, this may give a jolt to the market that has seen Trump’s corporate tax cuts. To carry on the upward
trend of earnings in Trump’s presidency, Biden will have to weigh up the possibility of keeping the rate at 21%, rather than the publicized 28% until the economy settles in the post-pandemic period.
6. Environment friendly
It is expected that Biden’s presidency will totally change & reform the energy sector. The sustainability agenda put forth by Biden is the most daring step any president has taken for the environment by defining climate change as “the existential threat of our time.” It is hoped that Biden will position the environment next to Coronavirus on his agenda for the first 100 days of the presidency.
President Biden told reports on 19 December that “Just like we need a unified national response to Covid-19, we need a unified national response to climate change. We need to meet the moment with the urgency it demands, as we would during any national emergency.” The environmental agenda is not isolated from the economy; in fact, the Biden administration wants to join together economy & environment. This will offer vast opportunities in the green sector. Treasury Secretary Janet Yellen has tweeted: “Our mission is to restore economic prosperity
and financial stability. We’ll do that by pursuing an investment agenda to rebuild our
infrastructure, create better jobs, advance racial equity, and fight the climate crisis.”
Biden will be able to set out the expansion of electric vehicles, solar energy, de-carbonization &
other green initiatives by using his extensive regulatory power. It is evident that Biden
administration’s long term efforts will be on the integration and assimilation of environment &
7. ESG Investments – the new era
Biden’s presidency & coronavirus’s timing may prove to be a stimulant for putting ESG investing into the limelight. Deloitte’s research shows that by 2025, half of all managed US assets will be ESG-mandated assets. The primary reasons behind this emergence of ESG popularity are behaviors & opinions of investors shaped by Covid -19. Fidelity notes that the main factor driving up the demand for ESG investments is that investors want
to invest in social & business change-makers to earn & protect reputation and profits. Jon Hale, head of sustainability research for the Americas, Morningstar, told CNBC that Biden’s legislation and policy path would “steer investors to low carbon and fossil-fuel-free portfolios.”Russell Investments implies that the Biden administration will choose a “hands-off approach to regulating the role of ESG considerations.” This will pave the way for fewer regulations for ESG than the present set of regulations.
8. Relations with China
In 2011, Biden said that “a rising China is a positive development” for America and the world. But today, he has changed his stance to caution & suspicion. In contrast to Trump’s no holds barred approach to China, Biden will try to resolve the relationship’s current deadlocks to avoid the lose-lose result. Although Biden has said that he does not plan to eliminate tariffs, some have forecasted that taxes will be removed ultimately. Biden administration will most certainly decide on taking the diplomatic route that will involve the regional US allies & move the talks with China further than trade to include regulations on investment, intellectual property, and human rights. The stopgap method of using tariffs as leverage with China will prolong a trade war’s negative impact on the US economy. A favorable result of the dialogue reciprocated by both China & the US
would be a welcome sign of normalization.
9. Relations with the UK and Europe
Establishing good relations with the EU & UK is the wish of many democrats. Still, from the Biden administration’s general tone, it seems that Biden is not in a hurry to make new economic agreements. Much to the UK’s disappointment, Biden has vowed that he “won’t enter into any new trade agreements until … [the US has] made major investments here at home”. Unlike his Democratic predecessors Obama & Clinton, Biden is a bit restrained, seemingly in hopes to silence antiglobalists back at home. In a clear shift from Trump, Biden has assured that he will resume the dialogue to re-establish European allies’ cooperation. Winning allies’ support is crucial for Biden to reorganize WTO for issues like the lengthy dispute settlement process and judicial overreach.