On January 5, 2021, the US state of Georgia held runoff elections that determined two Democrats as their US senators, giving the Democratic Party control of the legislative and executive branches through 2022. President-Elect Joe Biden’s cabinet nominations can possibly gain quick Senate approval, and Democratic priorities, such as reducing carbon emissions and protecting labor, may also see swift enactment. Other possible changes:
- We think the market will view the election results as positive because of the increased likelihood for more stimuli, including potential $2,000 stimulus checks for individuals.
- In addition, we believe there will be more federal spending and expect the initiation of big infrastructure and climate-change reduction programs. Their passage will likely lift infrastructure sectors and “green” stocks, e.g., alternative energy, small capitalization, construction, and materials.
- With the possibility of some inflation, banks may benefit from higher interest rates.
- We expect additional support for state and local governments, which should be positive for municipal bonds.
- Both corporate and personal taxes seem likely to increase. Corporate tax increases could have a direct impact on a corporation’s earnings and therefore its value in the marketplace. Higher personal income taxes could dampen consumer spending, which perhaps would be offset by additional fiscal stimuli. Any changes to capital gains or estate tax rates might affect individual investment behaviors.
- We think the US dollar may weaken and there may be less trade tension. This can be positive for international stocks, as well as US stocks that have a large ex-US revenue component. We think there are opportunities in international stocks, especially in Asia.
- Some of the highest-flying, best-performing stocks of 2020—mostly big tech stocks—could be hurt by higher tax rates and/or possible regulations. We think there may be opportunities in value stocks as economies begin to reopen.
The biggest risks affecting the recovery remain COVID-19 and its more infectious variants. The good news on new vaccines is hopeful. The rapid, mass, global distribution of COVID-19 treatments and vaccines will have the most impact.
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