The prospect of a Joe Biden presidency with a Republican-held senate is an ideal outcome for markets, said Charles Myers, founder and chairman of Signum Global Advisors, during the Canadian Investment Review’s Investment Innovation Conference in November.
Speaking the morning after the election, Myers said Republicans’ expected continued control of the senate would have “very profound implications” for policy-making in the next four years.
Biden’s more transformational legislative goals, such as raising corporate and personal taxes, pushing through a public health care option and launching a carbon tax or a financial transaction tax, will be hamstrung by the senate, said Myers. “There is a sense that with gridlock next year in Congress, Biden’s going to have to not only appoint a very centrist cabinet . . . but also govern in the centre.”
That prospect was likely behind the market’s Nov. 4 rally, he said. However, while a divided government has been historically positive for markets, this one presents negatives that the market will need to price in getting closer to January.
A Republican-led senate will challenge Biden’s plans for a US$2–3 trillion stimulus package, as the senate majority leader Mitch McConnell has expressed interest in a more modest package of US$500 billion to US$1 trillion. Republicans are also expected to oppose Biden’s US$2.5 trillion infrastructure package in the first half of 2021, which would have contained the largest allocation to renewable energies to date. “Now, most of those initiatives around green energy [will be more challenged], frankly,” Myers said.
However, he noted Biden can do plenty through executive order to re-implement environmental protections and fossil fuel regulations, end fossil fuel subsidies and re-enter the Paris Agreement. “Fossil fuels will be much more tightly regulated.”
Myers also said he expects managed-care companies to perform well without significant government competition. Pharmaceutical companies, too, will perform better, as Biden won’t be able to give Medicare the ability to negotiate directly on drug prices. However, the anti-trust movement against technology companies is expected to accelerate with a Biden-controlled Department of Justice. Further, housing could do well as Biden forges ahead with a plan to increase home ownership for low-income Americans, using both agencies and government spending and taking advantage of the low-interest-rate environment.
The upcoming debt ceiling negotiations in July 2021 could prompt a rehash of 2011, Myers added, when McConnell squared off against a Democratic president and “refused to lift the debt ceiling on . . . fiscally conservative grounds. The U.S. was peering over the fiscal cliff and we were downgraded by S&P.”
Throughout that standoff, markets experienced substantial volatility, he noted. “I don’t know if it gets that bad, but the politics around the debt ceiling in July and leading up to July are going to be very challenging.”
On the foreign policy front, the U.S.’s relationship with China will remain rocky, Myers added, noting that while Biden will likely implement tariff relief in his first 100 days in office, he won’t let up on Chinese tech giant Huawei Technologies Co., Ltd. and will be much more critical of China on issues of human rights and democracy. Biden could also restrict Chinese companies’ access to U.S. capital markets, an issue that Myers said Democrats feel strongly about.