The winners and losers from Biden’s first 100 days in office
Joe Biden Jr was inaugurated as the 46th President of the United States in January after a tumultuous few weeks on Capitol Hill. Covid-19, the climate and resetting America’s foreign policy will all be high on the President’s to do list for his first 100 days in office, and no doubt some sectors will be winners and some losers as a result.
Biden’s to-do list
Now Biden has entered the Oval Office he will have a long-list of issues he needs to deal with. First and foremost is America’s response to the Covid-19 pandemic, which continues to spread aggressively in the States. US$20bn has been dedicated to the production, dissemination and administration of vaccines, on top of over US$400bn targeted directly at fighting the virus.
Once the vaccine programme is sufficiently developed, attention will turn to the ‘American Rescue Plan’, which comprises a number of hawkish policies, including increases in corporate and personal income tax and a record high capital gains tax, alongside a US$2tr spending package representing 9% of GDP.
Then there’s the small matter of resetting America’s foreign policy after the Trump administration. The world today is politically, socially, and economically less stable than it has been in decades, and Biden will have to chart America through a more stable course while navigating Iran’s nuclearization programme, North Korea’s ongoing hostilities and the disinformation threat from Russia in the East.
Who will be the winners from Biden’s first 100 days in office?
Healthcare looks set to benefit from a Biden presidency. Many businesses in the sector have strong balance sheets with sufficient cash reserves to pay dividends this year and engage in M&A activity. Positive long-term demographic trends are on the sector’s side, including an aging population and a growing middle class in emerging markets.
Due to the significant impact of Covid-19 on economies around the world, governments will choose to spend significant sums on vaccine allocation and Covid-19 mitigation supplies. Furthermore, a number of new and potentially game changing cancer drugs are entering early trials, including the much-anticipated KRAS drugs.
However, this does not remove the threat of government intervention in the healthcare sector and we could see Biden reform prescription drugs and allow Medicare to negotiate lower prices with drug manufacturers, or penalize drug price increases over the inflation rate.
Alternative energy funds investing in solar, wind and water are already seeing stellar inflows this year, in contrast with dramatic outflows in those funds dedicated to fossil-fuel intensive energy. President Biden has advocated for $2tr to be spent on a climate plan to achieve a carbon pollution free energy sector by 2035. Once more, Biden’s presidency will reinforce investor sentiment that the global direction of travel is going one way, and with America on board, others will follow suit.
However, it is important investors remember that the sector has rallied dramatically over 2020, and valuations are extremely high. Major legislation, like the Green New Deal, may be difficult to pass even with a Democrat majority-controlled government, and any major blow to the positive sentiment could knock the wind out of the sector’s sails.
President Biden has already expressed his conviction to resume America’s role as a global leader in international trade, and has shown interest in reconsidering America’s membership of the Trans-Pacific Partnership. Emerging markets with exposure to US trade should benefit from the increased openness of US markets, as well as increased stability in the international trade market.
Reduced geopolitical tensions may lower international volatility and result in the influx of foreign capital into emerging markets. Once more, increased infrastructure spending in the States may result in increased commodity demand, which is historically a major sector of emerging market economies.
And what about the losers?
Utilities are generally regarded as an important defensive sector given their stable revenues. However, valuations are high relative to the sector’s historical average, which potentially dampens the sector’s defensive characteristics. Once more a potential economic recovery in the States will make the sector much less attractive relative to other sectors who can take advantage of the recovery play. High interest rates on the horizon will also dampen utilities attractiveness.
Companies that provide consumer staples tend to have limited pricing power in a low-inflation environment and while they have been the beneficiaries of government stay-at-home orders, an improving economy and strong stock market have historically made the sector relatively less attractive to investors.
Additional government fiscal stimulus and the future availability of Covid-19 vaccines could further support the economy and reduce stay-at-home food and staples demand.
About AAM Advisory and Quilter plc AAM Advisory is a Singapore-based financial adviser business with 5,500 clients and circa S$1.1bn AuA (as at 30 June 2020). Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow. Quilter plc oversees £117.8 billion in customer investments (as at 31 December 2020). It has an adviser and customer offering spanning financial advice, investment platforms, multi-asset investment solutions and discretionary fund management. The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.