30 November 2020

Ronan Zille

Principal Adviser - Sydney

As the world shrugs off the uncertainty of one of the most divisive US presidential elections in history and watches on as president-elect, Joe Biden, assumes office, the question everyone is now asking is; what does a Biden administration look like for markets and the economy?

The answer should largely lie in the history of Biden’s political scorecard and whether his administration will lean towards a pro-market and pro-economic outcome. Biden has a track record spanning 36 years as a senator, eight of which he served as vice president. The policies, legislative changes, and bills to which he co-authored envelope everything from climate change through to gay marriage and now, as president, they will preside over the incredible global uncertainty we are presently facing. This is coupled with historically low global interest rates and, in some instances, negative rates for bond holders. The backdrop of the recent election result means Biden has the unfortunate task of mending a largely divided nation while, at the same time, paving a path forward for the country.

Biden may struggle to pass many of his intentions through the Senate given the Democrats currently hold 46 seats, the Republicans currently hold 50 seats, and 51 seats are required to hold a majority. The House of Representatives is where Biden’s party holds a comfortable majority of 222 seats (Republicans hold 205). The House holds several exclusive powers, including initiating revenue bills and impeaching federal officials. The Senate, however, has the sole power to confirm the President’s appointments, which require consent, and to ratify treaties.

 

What can we expect?

Throughout Biden’s campaign, he postured towards tax hikes for companies and individuals however, a Republican majority Senate may see this amounting to a lesser likelihood.

Under a Biden administration, we may see more stimulus spending but again, a divided Senate could kibosh his initiatives.

If Biden were to relax the US migration policy, we could see a tailwind for the labour force.

Biden has signalled for an increased focus within the US on climate change which may impact the oil and gas sectors.

His policies surrounding the restoration of the Affordable Care Act (dubbed “Obamacare”) may be detrimental to some healthcare companies.

Finally, Biden will most likely be seeking international reengagement and he may largely reverse the policy initiatives of the Trump administration. This could have a positive impact on the tobacco, technology, and automotive industries, all of whom service a global customer base.

The timing, cost, and successful implementation of such policies all remain to be seen. The only real certainty however, is that the world will be watching more closely than ever.

 

Our view

In times of significant market uncertainty, it is important to remember that attempting to finesse portfolios in the midst of sharp global moves is difficult and generally detrimental to performance, especially when emotionally driven.

Despite what happens over the coming months and years, we continue to stand strong behind the view of building and implementing portfolios with a goals-based approach and a long-term perspective. In our view, it is important to position portfolios based on the longer-term fundamentals and valuation drivers while being prepared to react quickly if those sharp moves create particularly attractive opportunities consistent with the longer-term perspective.

If you have any questions in relation to your personal investment portfolio, please get in touch.

 

Disclaimer: Any advice included in this article is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors and where appropriate obtain financial advice. Any tax information refers to current laws, is not based on your unique circumstances and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.