And the winner is…
It is the fourth day after the election, and the outcome is almost certain: Joe Biden will be the 46th US President, Kamela Harris will be Vice President, the Democrats will hold the House of Representatives and the Republicans may hold the Senate (though an additional voting round in Georgia on 2 seats will only be conclusive in January). The political stalemate between the House and the Senate may thus continue for another 4 years. And that is in itself not something to look forward to. It’s different for Wall Street. A “red” Senate will mean tax increases and new regulations can be stopped or delayed. Wall Street’s reaction was consequently positive.
America today
Is this still the country that we all admired so much? What is left of the democracy that once set the example for the rest of the world? With all the manipulation, with all the lawsuits and postal-vote hassle, the notion of “one man, one vote” has, it seems, long been abandoned. And how sad that Trump is going to court to challenge his loss.
Trump could not unite the country anyway, but will Biden succeed here? And will the losing part of the population (and especially Trump) be able to control itself? This charade is increasingly undermining the US’s role as the world’s superpower. Perhaps we can only conclude that this is already no longer the case. Because even with the Biden win – and as the more unifying presidential candidate -, isolationism will diminish only a bit. Perhaps, thanks to his Irish roots, he will help preserve the Irish Good Friday agreement and force Boris Johnson to prevent a hard Brexit (although talks with the EU have not yielded much in recent weeks). Otherwise, England could forget about for a decent trade agreement with the US. Biden could therefore be especially good news for Europe.
Global impact
But perhaps more important for world trade and world peace is Biden’s negative stance towards China. The Democrats are also tough in this trade relationship. As a result, the US might become increasingly isolated. Because China, which has so far been able to combat the virus very effectively, still has a fast-growing domestic economy.
Both Europe and the US should benefit as a result. Unfortunately, both regions are again suffering under COVID pressure and renewed lock downs. The US is now even global leader in corona cases with 120,000 infections per day!
I hope, as we all do, that a vaccine will be available soon, but one would come with some added psycho-pharmaceuticals to generate a more friendly view of the world. One that makes one tend to work together more. Biden is the person for that. He will probably again embrace the Paris Climate Agreement and also accept the GATT as trade body again. Whether he will support taxation for multinationals (tech-companies especially) is still the question. For Biden and the Democrats too, American interests is very important. still come first.
Effect on financial markets
Now back to financial markets: October was to become a troubled month, as I wrote last month. Stock markets indeed went all over the place, first up and then down considerably. Developed markets ultimately did not keep it dry, Emerging Markets, on the other hand, did improve slightly. Bonds paused, but credit spreads, the compensation for taking credit risks, widened again.
We have kept some of your powder dry so far and are reluctant to invest it in the euphoric market reactions surrounding the election results and the arrival of new vaccines. To this end, given the already high valuation levels, we are looking for better entry times.
Despite Biden’s gain, the chances of a hefty fiscal bailout package are limited as Republicans appear to be winning the Senate where they mainly want to slow down and weaken budget proposals. And so the market turned its eyes again to the Fed, for perhaps additional monetary stimulus? The sudden fall in long-term interest rates seemed to be the writing on the wall. Within the Federal Reserve, however, there are doubts about the usefulness and necessity of further easing: interest rates are already close to zero. Fed chairman Powell stressed that budgetary policy is what is needed.
The Senate can hold back a lot, for example regulatory measures proposed by Democrats for, or rather, against Wall Street and especially the tech-sector. This also played a role in the price recovery of the past week, which was around 6-7% in Europe and the US, even before the vaccine euphoria emerged. Valuations have thus once again taken an advance on a further economic recovery in 2021.
Farewell Trump
To conclude this election special, I express the hope that Trump will soon disappear from the scene and will refrain from calling on his supporters to continue the fight on the streets. In doing so, he would disqualify the country as a democracy and not do justice to all those people who are trying to ensure that the election process runs smoothly these days. Biden’s personality also offers the greatest opportunity to reunite the country. Let’s hope he can restore the world’s hope that the USA can again be that beacon of freedom and tolerance.
BY: WOUTER WEIJAND, Chief Investment Officer
