On 20th January 2021, Joe Biden assumed his place in office as the 46th President of the United States. But what effect does a new President in the White House have on the country’s economy and financial market? And what does it mean for the market with Democratic control over both chambers of Congress?
The relationship between politics and finance has always been an important one, especially during such a transitional period of an election, as the ability to implement new and relevant politics has a direct impact on spending, the economy and particular industry sectors. So, let’s analyse the areas of the financial market that is affected by US politics and the result of the recent election.
The US Economy
US policies have a direct link to the economy of the country, as the President decides the tax and interest rates of the nation. As part of his campaign, Biden is set to address the racial wealth gap in the US, as there was a push from the public for higher taxes on the richer population. He aimed to reverse many of the tax cuts that former President Donald Trump signed into law for corporations and wealthy individuals. It is expected that it will be easier for Biden to pursue these policy objectives, as the Democrats now have control of the Senate.
Business experts also predict that, due to the fact that the Democratic party has this control, there will be a bigger fiscal stimulus spending approved, than there would have been previously. This is good news for the banking sector, as this could see the US Federal Reserve increase interest rates, which have been kept low due to the ongoing pandemic and heavily depleted the profitability of the banks. The main US stock indices also seemed to increase as a reaction to Biden’s win, especially amongst smaller companies, who would benefit from more government spending and an improved economy.
However, with more government borrowing and inflation, and expectations that the US trade deficit could widen, the US Dollar has fallen dramatically and the forex trading market is expected to continue to be bearish for this currency. With the ongoing coronavirus crisis also having its effect, the US Dollar has seen its lowest levels in years, particularly against the Euro and the Swiss Franc.
Climate Change
The commodities market is continuously impacted by government policies, as world leaders turn to more sustainable energies, and the US government invests in a green energy agenda. As the US is one of the competing producers of oil, investors of oil trading will be interested in the new President’s plan for decarbonisation, as Biden is expected to invest $2 trillion dollars in the green sector, introduce changes to the automotive industry, and re-join the Paris Agreement.
As a reaction to the election results, the stock market saw a move from interest in the technology sectors, and towards the shares that are investing in renewable energy, as well as the companies producing electrical cars and batteries, and renewable energy providers. It is also expected that this US administration will enforce more regulations to the current energy sectors, and even introduce trading fees onto countries that do not commit to cleaner and greener policies.
Domestic Manufacturing
As a strong contender in global trade, America’s policies on trade and its relationship with other countries is closely watched by investors, as this will have direct results on the price movements of several financial markets. It is believed that Biden will now provide some calmer times, and put an end to disruption in trade between the US and China, and the EU.
On the other hand, as part of Biden’s campaign, he promised to mobilise American manufacturing and innovation, to ‘bring home critical supply chains’ and to ensure that the nation isn’t fully dependent on other countries, especially in the case of a future crisis. As a result, there has been an upward trend for shares in companies that benefit from this domestic industrial and infrastructural investment.
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One thing for certain, is that after the political turmoil that the US has recently experience, the new and 46th President has caused some clarity and certainty for investors, and a sense of calm for the future of the financial markets.
