The Democrats’ “blue sweep” became reality
Following the US election results in November, it appeared likely that incoming President Joe Biden would face a “divided” US Congress and gridlock in the US government, putting most of his agenda in peril. But the resolution of Georgia’s Senate races ultimately ceded control of both the House and Senate to the Democrats, although they still have only slim majorities. That makes a “Biden-lite” agenda likely: for example, tax increases will be less than initially outlined and may not be a year-one priority. Instead, we expect the new administration to first pursue policy items that have more bipartisan support from both Democrats and Republicans, such as stimulus packages and fiscal spending:
- Covid-19 stimulus in the range of USD 1 trillion could be passed in the first 100 days of a Biden administration – including USD 2,000 stimulus cheques (meant to put money directly into the hands of consumers) and support for state and local governments. This should be positive for value cyclical sectors tied to the economic recovery.
- Fiscal spending in areas such as infrastructure is attractive to both Democrats and Republicans. Expect a proposed infrastructure-spending package of under USD 1 trillion. This would include traditional infrastructure as well as areas such as renewable energy and technology (including 5G and broadband).
- Although clean-energy spending is unlikely to hit the Biden team’s original USD 2 trillion goal, they may still seek meaningful subsidies for wind and solar power and electric vehicles. And Mr Biden is committed to returning the US to the Paris Climate Accord.
- Other agenda items that could have bipartisan support include cutting drug prices and reining in “Big Tech”. These are important issues for the markets, but they are not necessarily a high priority for the Biden administration. For now, we expect incremental change rather than wholesale shifts in these industries.