January 2021

We asked our partner, Asset Intelligence, to share their thoughts on the new President’s plans for the economy. 

---

Here are five things you need to know about Joe Biden’s plan for the economy and what it all means for the markets.

1. More spending is coming! It’s only been a few weeks since President Trump signed $900 billion of extra coronavirus economic stimulus into law. However, Joe Biden wants to go further, and has promised to push for another $1.9 trillion in further help – for small businesses, state and local governments, and individuals.

2. Funds to fight the virus. A big part of the stimulus plan is extra funding to help defeat the virus itself, with $70bn pledged to expand testing and speed up the vaccine rollout. Of course, the quicker all this helps to get everything open again, the better for the economy!

3. Building back better’. Further down the line, once emergency relief has been passed, Joe Biden is keen to invest in a number of education, infrastructure and climate change initiatives in order to, as his campaign put it, ‘build back better’. If substantial enough, investments of this kind could give a big boost to the economy in the short-run as well as set America up in a stronger position for the future too. 

4. It might not all be good news! The Biden plan isn’t all sweetness and light for corporations. Democrats certainly do not share Donald Trump’s deregulatory zeal, and rules on environmental matters and finance are likely to be tightened up considerably. The President has also called for companies and the wealthiest to face tax increases to ‘pay their fair share’. 

5. Congress will limit how much Biden can get done. The President’s Democratic Party commands a narrow majority in the House of Representatives but the Senate is effectively tied 50-50. The casting vote goes to the Vice President Kamala Harris, giving the Democrats a very narrow edge. However, in practice, Senate custom means that sixty votes are typically required to advance a Bill.

So those proposals of the President’s which are unlikely to garner any Republican support, such as a $15 minimum wage, are indeed likely to be dead on arrival. But tax and spending measures, such as stimulus plans, can be forced through on a simple majority vote once per year. 

So what impact is all of this having? Along with positivity over a future free of lockdown restrictions thanks to the vaccines, President Biden’s plans have contributed to investor optimism on the strength of the US economy going forward. Indeed, we have started to see both market interest rates and inflation expectations rise.

That could mean we see value stocks and companies whose returns are typically more dependent on the health of the overall economy put in stronger performances this year than we have seen for a while.