Biden looks to unify the US

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Personal Investments

09 November 2020

With Joe Biden finally confirmed as president-elect, we look at what the result may mean for investors.

The 2020 US presidential race, widely seen as one of the most divisive in history and set against a backdrop of rising coronavirus cases, is at last over. The Democratic party’s candidate, Joe Biden, will become the 46th president of the United States in January. But while Biden’s victory speech called for unifying America, the government over which he will ultimately preside may well be divided.

This is because Congress (the law-making body in the US which is composed of the House of Representatives and the Senate) is run by different political parties. While the House of Representatives is controlled by the Democratic party, the Senate is likely to remain in the hands of the Republican party.

What does a divided government mean for investors?

Despite Donald Trump’s ongoing protestations of electoral fraud, a decisive result for Biden as the next resident of the White House has given investors some relief. But governing with a (likely) split Congress will be difficult:

  • The possibility of President Biden passing major laws on healthcare and ‘green’ infrastructure (infrastructure means railways, roads and buildings) is less likely to be achieved, in our view
  • That said, Biden’s aim to restore America’s seat at the table of the Paris Accord, an agreement designed to tackle climate change, will go ahead as this does not require congressional approval
  • A rise in corporate or company taxes – which had seemed probable under President Biden’s tenure – now looks less likely, in our view, given the potential challenges he faces in getting this law passed by a Republican Senate
  • Notice that, as the votes were being counted, investors began to see a rise in the US stock market, partly on relief that these higher taxes, which would effectively depress US company profits and hence potentially lower the prices of company shares, would not now take place

Coronavirus continues to concentrate investors’ minds

Even though the winner has finally been declared, we believe the near-term US economic outlook will more likely be dictated by the disruption caused by the current nationwide surge of COVID-19 in the US, rather than the election outcome. As a result of the pandemic, the US is experiencing its worst economic downturn for almost 100 years. The need for additional government aid to fight this pandemic has become a top priority.

Unsurprisingly, one of the first tasks on president-elect Biden’s list is to set up a coronavirus taskforce to stem the rising number of cases. Once again it appears that the prospects for a healthier economic picture in 2021 now hinge less on who holds the keys to the White House and more on a successful distribution of a vaccine.

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Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.

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