An inauguration is usually a fairly mundane affair, but 40 million people tuned in to witness Joe Biden officially become US President. A day of high emotion and high security presence, many outside the US were watching too, if only to make sure his predecessor had definitely left the building. In the first few days since taking office, President Biden has signed 30 executive orders, marking the start of his presidency and a clean-up operation to address some of his predecessor’s more questionable actions.
Despite a career rich with foreign policy experience, the less than united America Biden has inherited will keep him busy at home this year as he redresses the management of the Covid crisis, with an extra 10 million Americans out of work and the shocking number of citizens who have lost their lives. Surveys in Europe indicated America’s reputation had been weakened by its handling of Covid with a lack of global leadership coming from Washington. Overseas relations will need to be repaired, but they may have to wait until the US domestic environment has stabilised.
The relationship with China, however, is one that is not expected to change overnight. China’s significance as a rival to the US is widely accepted by Democrats and Republicans alike, with little hope of the US reverting to an Obama-esque level of tolerance. The central opinion on China has shifted to the right and it’s unlikely Biden will seek to lift all of Trump’s tariffs. There is a difficult balance to strike between collaborating with Beijing on climate change and health, while pulling back on technology, trade and supply chains, as Biden is keen to revive domestic manufacturing.
Biden has already announced a huge $1.9trn ‘rescue’ plan to bolster unemployment payments and child tax credits, to be followed by a ‘recovery’ plan focused on infrastructure and climate change. With an additional $1.6trn the US consumer has accumulated in bank accounts since the crisis, commenters have noted the scale of the stimulus outweighs the economic damage, risking an overheating of the economy and inflation. It’s not clear if the Republicans will be prepared to work constructively with a Democrat administration, or if Biden might lure moderate Republicans to back his plans. Perhaps the most likely outcome is the approval of a less spectacular sum, with the Federal Reserve maintaining its QE programme and keeping interest rates low.
Going into 2021, with investors feeling more confident, some investment managers believe the more economically sensitive stocks will maintain the share price performance witnessed since the vaccine news in November. Having had their share prices beaten up in 2020, market expectations are low for many cyclical businesses, although we note that risk to their performance might come from an issue with the distribution of the vaccine or its effectiveness against a new variant of the virus. After enjoying such a strong rally in 2020 the US market may show more differentiation from here, with sector and stock selection driving performance.