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Regardless of one’s politics, Joe Biden’s victory in the 2020 U.S. Presidential election marks an important event for investors’ portfolios – not only those residing in America, but also globally. In this article, our financial planning team here at WMM offers some thoughts on how the election result has impacted stock markets in the short term, as well as reflections on how investments may be affected in 2021 and beyond.
The November “Biden Boost”
As the outcome of the U.S. election started to become clear in the days following November 3rd, stock markets across the world rose. The FTSE 100 in the UK rose back over 6,000 after a steady fall across October, whilst the Nikkei (Japan’s leading stock index) reached its highest point since 1991. Blue chips in China rose by 0.8% as talk spread amongst officials and firms that a Biden White House might reverse or dampen some of President Trump’s tariffs imposed during the “Trade War”. Shares in the Asia-Pacific region (excluding Japan) climbed to their highest point for almost three years, whilst U.S. indices the Dow and S&P 500 made their biggest weekly gains since April 2020.
Why have markets reacted like this to Biden’s victory, and what might this mean for investors? One of the less-noticed outcomes of the election is that Congress is likely to remain divided in 2021, with the Senate possibly still in the hands of Republicans. From an investor perspective, this makes it less likely that policy extremes will be pursued – thus mitigating risk. Moreover, a lack of legislative control will also make it less likely that Biden can hammer through stringent regulatory and antitrust action on “tech giants” such as Google and Facebook (which, together with Amazon, Microsoft and Apple, have been responsible for most of the continued U.S. stock market growth so far in 2020).
Another possible outcome of a divided Congress is a reduced financial-aid package to help deal with the economic fall-out from COVID-19. This could lead to a fall in U.S. Treasury yields that, in turn, might encourage the future earnings of growth stocks. Looking at U.S. bonds more widely, moreover, less-ambitious fiscal stimulus could also lead to a rally continuation – since debt holders may be less concerned from the higher inflation that would likely result from a more rapid economic recovery.
Other investment implications
One of the most noticeable policy differentiators between Biden and Trump concerns attitudes towards climate change. With the former’s victory, this could be good news for investments in the ESG sphere (i.e. environmental, societal and governmental). Throughout their campaign, both Biden and running-mate Harris have repeatedly highlighted issues of climate change, social justice, equality and diversity. They have vowed to bring the U.S. back into the Paris Agreement on protecting the environment, and both have emphasised their desire to move the U.S. away from its reliance on fossil fuels towards renewable energy. In 2021 and beyond, it is now more likely that U.S. rules concerning ESG investing and corporate transparency will now fall into line with those of Europe. With more agreement on international standards and perhaps even a more robust global framework in place, the ESG sector could see a boom quite soon.
The Biden victory has already impacted equity markets across the world and ripples will likely be felt for many more months to come. Also important are the recent announcements by Pfizer and Moderna of possible vaccines to COVID-19, effective at 90% and 94% respectively. We at WMM will be watching events closely as we enter 2021 to ensure that clients are kept informed about how their portfolios may be affected, and how this might affect their decision-making.
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