What can investors expect from Biden’s presidency? - November 12, 2020
The 2020 presidential election took place on November 3, 2020. Several major media outlets declared Biden the president-elect on November 7. Although we will have to wait for the official results, it seems that Joe Biden will be the 46th president of the United States. What does it mean to markets and to the economy?
Democratic presidents are often considered to be less business friendly. Republicans are often seen to be more favorable for equity markets. However, a long-term analysis shows that in fact the US stock market historically performs better under a Democratic presidency (see Chart 1).
We’ve analyzed the performance of S&P 500 between 1945 and 2020 and have found out that the average annual return under Republican presidents has been 4.9% against 10.5% under Democrats. Global stock markets reacted positively to the news on Biden being declared as president-elect. What can investors expect from Biden’s administration?
Taking COVID pandemic under control would be one of the most urgent topics. In addition to the public health measures, Biden plans to provide relief to working families, small businesses, and communities, extend COVID crisis unemployment insurance, and provide a comeback package for Main Street businesses and entrepreneurs.
Biden plans investments in modern and sustainable infrastructure, clean energy, research and development. Increasing infrastructure and R&D investments can support growth and foster innovation. However, his clean-energy drive may affect oil and economies or companies which are dependent on its price.
He says wealthy Americans and big corporations should pay their fair share of taxes. On the one hand, higher taxes are not good news for corporations. On the other hand, removing Trump's tax incentives will pay for, e.g., investing in infrastructure and dealing with the COVID-19 crisis.
He is going to support domestic manufacturing and puts special attention to the auto industry. He also puts special focus on investing in small business, especially amid COVID crisis.
We can expect efforts to re-establish relationships with international partners, which is a positive sign for the global economy. “The initial impulse is for the world to look forward to a United States that re-engages in a more systematic, a more predictable way, to tackle many of the severe problems we face globally,” BlackRock Vice Chairman Philipp Hildebrand said in an interview on “Bloomberg Surveillance”. However, based on Biden’s rhetoric, we do not expect trade tensions between the US and China to cease under Biden's presidency.
Turning though visions into reality may be a challenging task. The Democratic candidate may have won the election, but the majority party in the Senate will remain an unanswered question until January 5. Runoffs in Georgia will decide if Democrats gain the seats necessary for a 50-50 split and control of the Senate.
Historically, Democratic presidents have not been less favourable to stock markets than Republicans. Quite the reverse, actually. Joe Biden’s presidency would mean more predictability, support for workers, small business and middle class, investment in infrastructure and clean energy, some raise in the taxes for wealthy Americans and corporations, and revitalization of the partnerships with foreign allies.
Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.