The world had to wait until Saturday to receive confirmation of the US election result. Joe Biden will be sworn in as the 46th President of the United States in January. Markets appear to have breathed a sigh of relief, not necessarily because Mr. Biden was the preferred candidate, more so because the world’s largest economy has now avoided a contested election and the risk of politically motivated civil disturbance has fallen. Uncertainty has cleared and the world now knows where it stands on the issue of who will govern the US for the next four years.
What does a Biden presidency mean for markets and investors? Equity markets already gave us some indication last week, with very positive moves in global equities and VIX (measure of volatility) coming down dramatically to close Friday at its lowest since August (low volatility bodes well for equity markets).
Dominion’s view going into this election was that Biden would probably win and, absent civil unrest, equity markets would rally into the end of the year. This appears to already be playing out and we think the set-up for equities into the end of 2020 is bullish.
Looking further forward into 2021 and beyond, Biden is on the record as wanting to accelerate the introduction of a new stimulus package (good for markets); support for stimulus measures is bi-partisan and we can probably expect something substantial in early 2021. On the other hand, he wants to increase taxes too (bad for markets). The possibility of tax rises will be limited by the Democrats not controlling the Senate. That could change in 2021 but for now, markets are assuming a Biden presidency with no Senate control, and that means no tax rises. Biden would also look to re-join the Trans-Pacific Partnership, taking a very different approach to free trade than his predecessor (good for markets).
Adding all these factors together, we believe Mr. Biden’s win is positive in the medium term for equities.
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