What to expect from a new POTUS?

Over the past few months news headlines have been focused on a potential coronavirus vaccine and the outcome of the United States election. Markets were forecasting a new Democrat president, along with a ‘blue wave’ where the same party controls both the House and Senate giving them the power to easily pass new legislative changes. Large institutions were calling for higher interest rates on the back of up to $3 trillion more in fiscal stimulus, increased regulation around the technology sector holding back tech stocks after their spectacular year, and global trade was forecasted to pick up as a result of more accommodative foreign policy with the exception of China.

Based on media outlets the new president of the United States (POTUS) will be Joe Biden effective 20 January 2021. Although this is still to be confirmed as votes continue to be counted in a few states, the probability of Trump getting re-elected is less than 10% based on betting markets. The President may change, but we still expect a divided government to remain in place (with Republicans controlling the Senate) limiting the ability for Biden to make major legislative changes. We expect the following policy to shape markets over the next six to twelve months.

• More fiscal stimulus to come, but less than the $3 trillion that Democrats want and likely not until early 2021. This will push bond yields higher but not to the same extend if we got a ‘blue wave’ in the US.
• Corporate tax hikes are less likely to pass, given the republicans will vote this down and control the Senate. This is supportive of corporation profits and since the election global equities have rebounded 7% through the first week of November reversing October’s underperformance of 3%.
• Gridlock (a split government) will limit major legislative changes so the future is more certain for the status quo. This eliminates one of the risks for the technology sector where good gains have been a major contributor to our global share investments outperforming world share markets over the past six months.
• Foreign policy should be more accommodative for globalism, except for China where we expect a sturdy hand to remain no matter the election outcome.

Markets have reacted favourably to the election results thus far, but time will tell with volatility likely to remain until a coronavirus vaccine becomes widely available and further fiscal stimulus is provided to keep the economic recovery from cooling down. Over the long-term elections have little impact on returns and therefore we continue to position portfolios for the trends that will persist over the next two to five years.