After four days of counting, Joe Biden has been called the victor of the 2020 presidential election, according to the Associated Press. A Democratic victory without Senate control is for now reinforcing existing market trends such as the hunt for yield and growth stocks. A Biden presidency with a Republican Senate would be unlikely to see any increase in taxes, which was arguably the biggest fear investors had about a Biden presidency. Of course, there are other challenges ahead: COVID-19 cases are rising, and the threat of economically damaging lockdowns is elevated.
With no blue wave, we are likely to see the Senate remain very closely divided, which will constrain the policy options of whoever wins the presidency. That probably rules out any substantial activity on taxes, as well as limiting any actions to control the major tech firms.
As previously exposed, of all the incoming president’s policy proposals, his promise to increase taxes on corporations could have had the most direct impact on the stock market. But without a Democratic Senate, the chances that corporate tax increases are coming any time soon are effectively zero, and this realization has also given stocks a boost.
The need for greater oversight of large technology companies was one of the few issues where there is bipartisan consensus, though disagreement remains over what form it should take. Whereas Republicans have been critical of social media companies for what they claim is unfair treatment to conservative viewpoints, a Biden administration would focus on antitrust and privacy regulation. Experts say that a Biden administration will likely build on the Trump administration’s antitrust stance toward big tech,
To conclude, given the prospect for gridlock in Washington, D.C. and the regime of lower rates for longer, the outperformance by tech stocks in the coronavirus era seems poised to continue. The forces of disinflation will remain prominent over inflation. To this point, the structural forces that have led to the political division in the United States have not been resolved and the economic forces that have led to such political divisions look like they are entrenched. While this may not be the most bullish outcome for financial markets, insofar as a blue wave would have likely brought more substantial fiscal stimulus, it is still seen as a positive development for risk assets in the mid-ter. However, some volatility might be expected in the near-term, given the recent significant market rebound and a short-term retracement might occur.
CHRISTOPHE BOGAERT, Portfolio Manager at GreenEthica by FIA AM