Jonathan Marriott, Chief Investment Officer
Joe Biden was sworn in as the 46th President of the United States of America at midday on Wednesday. By Thursday evening, he had issued over 20 executive orders. Donald Trump never fully conceded the election, delaying the transition process. On the day of his inauguration, Biden had only one cabinet member's nomination confirmed by Congress. The confirmation hearing for Janet Yellen for Treasury Secretary took place this week, but has yet to be put to a vote. President Trump had predicted a fall in stock markets if Biden won the election. However, on the back of the inauguration and Janet Yellen's comments, the S&P 500 hit a new all-time high on Thursday, up over 14% since the November 3rd election.
The transition may have been delayed and the inauguration celebrations cut back due to the pandemic, but the Biden administration is progressing quickly. His key priorities can be summarised as the pandemic and climate change. His approach will be to seek unity and multilateralism, which was reflected in his inaugural address and his stream of executive orders.
The new President has promised 100 million vaccinations in the first hundred days. He had already called for a $1.9 trillion relief package, and has now invoked the Defense Production Act to force US companies to make protective clothing, testing and vaccination equipment. The use of masks will be mandated on federal property, on buses, trains and planes. He has moved to require people entering the country to have COVID tests and to quarantine. Dr Fauci was retained, who commented that it was liberating to let the science speak. Nearly 3,000 people are dying across the US every day, and it will get worse before it gets better, but these regulations are moves in the right direction. In addition, the Johnson and Johnson vaccine may be approved by the US authorities next month. This is a single dose vaccine, which can be stored without the specialist refrigeration needed for the Pfizer/BioNtech vaccine, so may be much easier to deliver.
It is clear that, post-pandemic, climate change is the next major global challenge. Biden has immediately reversed Trump's decision to withdraw from the Paris Accord. He has blocked the building of the Keystone XL pipeline that would have increased oil supply from tar sands in Canada to refineries on Gulf of Mexico. Prime Minister Trudeau was ambivalent in his response; disappointed that the pipeline would not go ahead but pleased by the environmental progress.
Not only will the US re-join the Paris Accord on climate change, they will also reverse the decision to withdraw from the World Health Organisation. On international relations, China will be Biden's biggest challenge. While he has reversed many of Trump's policies, he has not removed any of the tariffs on trade with China. Janet Yellen commented that they will work with allies to counter unfair trade practices and forced technology transfers. The European Union has already reached out to the new President for an early meeting.
In the inauguration speech, President Biden reached out to the Republicans and dissatisfied citizens to be a President for all Americans. Healing the divisions in such a divided country will not be an easy task. Cooperation with Republicans will be needed in the Senate, where there is a 50:50 split, and the Democrats only have control through the Vice-President's casting vote. To get things passed quickly they need to beat the filibuster, which can hold up legislation, he will need 60 Senators to vote for "Cloture" which can end a filibuster. Janet Yellen focused on pushing the stimulus package saying "With interest rates at historic lows, the smartest thing we can do is act big." However, the $1.9 trillion package is opposed by most Republicans and a compromise will be needed. They could push through some of the spending by making this a "reconciliation bill" which cannot be filibustered and pushed through on a simple majority, but this type of event is only allowed once a year. Biden spent 36 years in the Senate and knows Republican Senate leader Mitch McConnell well. If anyone can get cross-party support, Biden may be the person who can. The pending Trump impeachment trial may sour relations with some Republicans. However, Mitch McConnell has been critical of Trump's actions, which are seen to have incited the Capitol invasion, and attended church with the Biden family ahead of the inauguration, which may be a good sign.
Janet Yellen's comments, just before the inauguration, on stimulus and delays in tax rises were taken favourably by the stock market, which made new highs this week. Yellen also indicated that they intend to only partially reverse Trump's corporate tax cuts. As a former Chair of the Federal Reserve (Fed), she is likely to give the Fed all the powers they need to support the economy. Her academic background focussed on employment and she will actively want to support the Fed target of maximum employment. Biden reaching out for cross-party support and centrist policies were also welcome. Markets don’t like uncertainty and Trump's unpredictability had a propensity to destabilise markets from time to time. At the start of Democratic administrations, there have always been fears that they would be less business friendly, but historically, the US stock market has done on average, marginally better under Democrat Presidents.
President Biden has got off to a flying start but will want to get his Cabinet in place as quickly as possible. To do this it may mean the impeachment trial of Donald Trump is delayed. His nominees are highly experienced people in their relevant fields so should get through without too much difficulty. I suspect we will see less turnover in this cabinet of experts than we saw in Trump's cabinet, where disagreement with the President was not tolerated. It is early days and the new President faces many challenges, in addition to the pandemic, but investors should not fear a Biden presidency.
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