Joe Biden will become the 46th President of the United States. Love him or hate him, the US can now focus on the things that matter most for markets—containing the latest COVID-19 outbreak and agreeing on additional stimulus to support economic recovery.
While Trump prioritised the economy over health, Biden will prioritise health over the economy. A switch in focus might see further economic constraints put in place (although Biden has stated he wants to shut-down the virus and not the economy). Regardless, we think the medium-term outlook remains positive.
While there remains considerable uncertainty around who might control the Senate, we know who the President-elect is. Joe Biden looks set to provide a more stable narrative at the White House (Translation: less Twitter-driven politics). In the short-term, this has been viewed favourably by investment markets.
There remain several uncertainties that might keep the rise in share markets in-check such as the need for a successful transition of power (Trump’s legal challenges might make this difficult), the need to get COVID-19 under control and the need for additional economic support.
For Australia, we expect the share market to take its lead from the US but with the added benefit of even more stimulus from the RBA following last week’s rate cut and because the trend remains towards reopening of the economy. Since we bottomed out in March with COVID-19, the Australian share market has lagged the US, mainly due to a lower weighting in “new” economy sectors like Technology which includes giants like Apple, Google and Netflix etc.
More robust economic growth here will support an improvement in corporate earnings alongside a gradual rise in dividends, and this is supportive of shares relative to low risk / low return bank and fixed deposits.
As we wrote in our pre-election article (click here) investors should remain focused on long-term outcomes and investment fundamentals. A summary of key points to follow:
- Election year politics don’t tend to have a meaningful and lasting impact on shares. Market performance depends on policies, not parties. And the idea that Republicans are more market-friendly (than Democrats) is not supported by historical returns.
- US monetary policy (interest rates) is independent of politics and will remain highly supportive for growth assets in the years to come. The Federal Reserve is committed to providing ongoing monetary policy support and has stated that it has the necessary tools if more is required.
- US fiscal policy (taxes and spending) is likely to be expansionary regardless of who controls the White House. Whether a split congress implies a more modest stimulus proposal, is something we will have to wait to see. However, both parties are awake to the severity of the economic downturn and that more stimulus is urgently required.
 Macquarie Investment Strategy update #33: US election implications: Positively middle of the road