Dubai: Investors have come to terms with the US presidential election outcome and the focus is now shifting towards how soon the world’s largest economy can regain its footing amid a raging pandemic.
“A conclusion to the election will allow elected leaders to focus on the critical task of crafting additional aid to address the economic damage created by the pandemic, and we may see volatility until that occurs,” opined Colin Moore, global chief investment officer at asset manager Columbia Threadneedle Investments.
Being reined-in by a divided government
“While Biden moves closer to assuming the presidency, his ability to implement some policy proposals may be limited by a divided government,” Moore further noted. “Regardless, it makes sense for investors to stay focused on long-term goals.”
The US presidential election has been widely viewed as a vital catalyst for stock market moves in coming months as investors gauged the policies the winner would enact. Now that the outcome of the vote is fairly ascertained, with US president-elect Joe Biden calming victory, a number of questions still remain.
“Mitigating the impact of the COVID-19 pandemic on the US economy and lives of those most impacted will be the principal challenge for Biden and his team,” Moore added. “As we move past the drama of the election it will be critical for leaders to get back to negotiating on programs that can support the individuals, businesses and municipalities most impacted by the virus.”
Can vote outcome slow down progress?
Ever since the outcome of the vote was revealed, investors have been weighing how whether a divided government can slow post-pandemic progress for the top economy. However, since then multiple analysts continue to reiterate that a divided government may limit Biden’s ability to implement change.
“Given the greater possibility of split control of Congress – a Democratic House and a Republican Senate – the size of the stimulus package is likely to be smaller, but that may be OK,” explained Moore.
“The delay in passing a second round of assistance has increased the need to act quickly and targeting the assistance on those most in need is vital,” Moore added. “In the first round speed was critical, but with hindsight the support was spread too widely.”
Any reason for markets to be bearish?
The prevailing view has been that a win by a Democratic candidate would have a negative impact on the stock market. However, several trend-watchers analysed that historically, no political party has been exclusively good or bad for markets.
Despite this many investors viewed Democratic presidents as a reason to be bearish, and analysts say it’s mostly because there have historically been instances wherein they tend to enact more business-unfriendly policies, such as tax increases and regulation, which can weigh on corporate profitability.
However, the reality is evidently far more complicated as presidential policies matter more than just party affiliation, with some markets and industries possibly emerging as relative losers, while others may be more insulated.
Many investors prefer a divided government
“For many investors, divided government is the preferred outcome,” Moore said. “I believe elections and subsequent policy changes rarely affect the long-term direction of market averages because they rarely lead to dramatic change in how the broad economy functions. “
“However, policy may impact individual business sectors significantly, creating winners and losers, Moore added. “As an example, potential policy changes in healthcare policy tend to affect investor attitudes to hospitals and pharmaceuticals in different directions.”
