Over a week ago, Joe Biden was sworn in as the 46th president of the United States. The new president’s agenda is very different from that of his predecessor, especially when it comes to topics such as climate change. In this article I will look at the potential impact of Biden’s agenda on the US economy and financial markets, and which sectors are expected to benefit or be negatively impacted by this agenda.
Biden’s appointment comes at a time when economic growth will definitely be top priority. This may result in higher interest rates in the first year. These outcomes will depend on whether his agenda is approved, and how quickly his ambitious plan to speed up vaccination can lessen the spread of the virus.
The stock market has already drifted higher on expectations about Biden’s new policies. In fact, if we had to compare the statistics since the election issued by CFRA, one of the world’s largest independent investment research firms, the S&P 500 advanced 13% – the largest for any president since at 1952.
A day before the inauguration, Wells Fargo & Company, an American multinational financial services firm, raised its US economic growth forecast for this year from 3.8% to 4.7%. The firm also expects the 10-year US Treasury yield to rise (value of bonds decline) to a range of 1.25% to 1.75% by year-end, from a previous forecast of 1% to 1.5%. The revision was mainly due to better than expected economic numbers and positive vaccine rollout news.
Shift into cyclicals
The stimulus programme accelerated the market rotation which began ever since the election result, as investors are shifting from growth names to cyclicals. The latter are sectors whose profitability is highly dependent on the economic situation. Cyclicals have outperformed other sectors, notching gains of up to 15% as at the time of writing. Financials and materials have also registered mid-single digit gains.
There is concern that Democrats could move to regulate or raise taxes for big tech. The year-to-date performance for the tech sector has fallen by almost 1%, while communication services which include names like Facebook, Amazon, Netflix and Google, fell 2% in the same period.
Revamped energy sector
Biden has set an ambitious target for the energy and car industries. The aim is to substantially reduce vehicle emissions. He intends to transition the country to 100% renewable energy for electricity generation by 2035 and net-zero emissions in the overall economy by 2050. Oil and gas operations are also being scrutinised – from how companies extract resources from the ground to the safety of pipelines that distribute fuels.
Biden put the US back in the Paris Climate Accord and plans to promote clean energy in his infrastructure plan. Clean energy shares and exchange-traded funds (ETFs) have done considerably well since the election. A global clean energy ETF, which tracks the performance of companies in the clean energy sector, has risen by 55.8% since November 3, 2020. The effect of this revamp can also be seen in the electronic vehicle sector, which has seen an ever increasing demand in the past few months.
Uncertain times for healthcare
The healthcare sector has been performing well, with the US healthcare sector gaining 3.8% since January, yet investors fear Democratic polices might affect the sector.
Currently the industry is relying on vaccines and COVID-19 treatments, with some investors thinking the industry will not be subject to higher pricing. One reason behind this is the fact that the Biden administration plans to raise subsidies in the Affordable Care Act, re-expected to have a spillover effect of lowering medicinal prices.
In his first days in office, Biden signed 17 executive orders, most of which were linked to his aim to dial up the national response to the coronavirus. He also undid some of the most odious aspects of Donald Trump’s anti-immigration push. This was described as the start of what is to come.
The future looks bright for various sectors, especially those that were pushed aside during the Trump era, such as global warming and human well-being, yet it is rather difficult at this point to make a concrete judgement on what might lie ahead during Biden’s term.
Julian Mangion, B. Com, ICWIM, is an investment advisor at Jesmond Mizzi Financial Advisors Ltd. This article does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA and is a member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in the article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Ltd of 67, Level 3, South Street, Valletta, on Tel. 2122 4410, or e-mail julian.mangion@jesmondmizzi.com.