February 26, 2021

Biden surpasses 270 electoral votes, but what does the future hold?


Updated:

save

While the vote count is not over, it appears that Joe Biden has secured the 270 electoral votes needed to become the next president of the United States. The combination of a narrow margin of victory and the possibility of Republicans retaining control of the Senate could affect the future policies of the new administration.

Although the result is not yet official, news agencies point to Joe Biden as president-elect. The media may be correct, but the outcome of the presidential race and the electoral battle for control of the Senate remains uncertain due to recounts, tiebreakers and pending legal challenges. We hope for greater clarity in the coming days, but in any case, the result will not be official until the Electoral College meets on December 14.

Suppose, then, that Biden wins the presidency and that Republicans maintain control of the Senate, a possibility that we will not know for sure until a runoff (runoff election) is held in Georgia in early January. Importantly, if Republicans only retain 50 seats, then the vice president’s casting vote becomes even more important.

Mitigating the impact of the COVID-19 pandemic on the US economy and its worst-hit citizens will be the main challenge for Biden and his team. As we move past the electoral drama, it will be crucial for leaders to re-negotiate programs capable of supporting the individuals, companies and municipalities hardest hit by the virus. Given the greater possibility of a multi-party Congress (a Democratic House of Representatives and a Republican Senate), the size of the stimulus package will likely be smaller, although sufficient.

Colin Moore, Global Chief Investment Officer, Columbia Threadneedle
Colin Moore, Global Chief Investment Officer, Columbia Threadneedle

Given the delay in the approval of a second round of aid, the need to act quickly and focus support on those most in need is even more pressing. In the first round, speed was critical, although in hindsight the support was distributed for far too many purposes. The outgoing session of Congress (known as the “lame duck session”) offers an opportunity to pass additional specific grants.

A divided government could limit Biden’s ability to make change. Democrats expected a “blue tide” (the color of the Democratic Party), which would have allowed them to control the executive and legislative branches of government, but that scenario does not appear to have materialized. The “lame duck” situation does not mean that nothing will happen, but rather that it is unlikely that, except for coronavirus-related aid and the extension of a “continuing resolution” (CR) to authorize federal government funding, barely there will be new initiatives during this short period.

Effects on the markets

For many investors, a divided government is the most favorable outcome. In my opinion, elections and subsequent policy changes do not usually affect the long-term direction of market averages, since they do not usually drastically alter the way the overall economy works. However, policies can significantly affect specific sectors and, in turn, generate winners and losers. For example, potential changes in health care policies could influence investors’ attitudes towards hospitals and pharmaceutical stocks in different directions.

A divided government could limit the ability of a president or political party to adopt some of its more radical ideas. If Biden assumes the presidency with a Republican Senate, his proposals to raise taxes for the wealthiest Americans and businesses or to place greater emphasis on regulation will face a more tortuous path. This does not mean that taxes will not go up, but a more moderate compromise could be reached, that is, a 25% increase instead of the 28% proposed.

We suspect that a divided government would also weigh in on possible proposals from the Biden administration regarding taxes on financial transactions, real estate and social security. Given the apparent support of the two parties for the so-called “offshoring tax”, a divided government would imply no change.

The conclusion of the elections will allow elected leaders to focus on the important task of devising new aid to alleviate the economic damage caused by the pandemic, and we could witness a period of volatility until that happens. While Biden is drawing ever closer to the White House, his ability to adopt some of his policy proposals could be limited by a divided government. In any case, we believe that investors should continue to focus on their long-term goals.

See them
comments

.



Source link