09/11/2020 - Markets: Joe Biden new US-President
Biden's election victory: a plus for green stocks
As an asset manager and investor Dr. Jens Ehrhardt saw the arrival and departure of many US presidents - and their impact for the stock markets. In this interview he explains, among other things, what fiscal policy could be expected from the election winner Joe Biden and which industries are likely to benefit.
Democrat Joe Biden is the new President of the US, but the Republicans still hold the majority in the US Senate. What does this mean for investors?
In the past such constellations were often positive for the stock market. Biden will not be able to implement major tax increases because the Republicans in the Senate are likely to prevent this. For the same reason there will hardly be any major burdens for pharmaceutical companies such as price cuts. Democratic presidents have generally been more generous in spending government money. All this is good for shareholders.
Already in the weeks before the election, another stimulus package had been under discussion, but Republicans and Democrats could not agree on it. Could the economy suffer if Corona continues to rage and no agreement can be reached?
The government stimulates the economy strongly anyway. Despite an economic stimulus package that is now probably smaller than that of a Democrat-dominated Senate there will be no economic slump. Monetary policy is even more important which is very loose.
Just in case does the US Federal Reserve still have reserves?
Not very much. But the USA is already swimming in money. We have seen interest rate cuts over the past twelve months. It usually takes a year for such rate cuts to have an impact on the economy. The interest rate cuts will still have a positive effect on the economy.
The conditions for Biden's start are similarly difficult if not more difficult than those Barack Obama found when he took office in 2008 - at the height of the financial crisis. Could monetary policy be more supportive?
Yes, I think so. US unemployment has risen since the outbreak of the Corona pandemic. Biden must take counter-measures. Selective support programs for people with low incomes will continue to be necessary. I am also optimistic that companies will invest more again. The expansion of the money supply alone should ensure that.
If incumbent Donald Trump doubts the election results and wants to take legal action against them, could this be a burden for the stock market?
Yes, during the dispute between George W. Bush and Al Gore US stock indices declined around 12 percent. In any case the so-called "lame duck" period of the incumbent who was voted out of office until the successor is introduced is usually not so good for the stock market. Trump will continue to try to delay the transfer of office legally or by other means. In the end Trump is unlikely to succeed. But there will be recounts in individual states.
Before the election many investors sold shares or hedged their positions. Will the money return to the market now that the election is over?
Most of this money has been returned to the market in the meantime. Prices have already risen by more than 5 percent. I expect a sideways movement for the next few weeks. There is not enough strength for strong price gains. But we will not see a sharp fall in share indices either.
Which sector do you think will benefit most from Joe Biden's election victory?
Renewable energy suppliers will continue to benefit. Companies with green business models have already seen strong price gains this year and some of them are already quite expensive. But the industry is being promoted worldwide. Biden's election victory is positive for green energy companies.
What about the technology industry? This sector was the driving force behind the price gains we saw on Wall Street.
Since 2018 almost only tech shares, gold mine operators and green energy shares have risen in price. Tech will continue to attract a lot of investor money. Most IT companies earn well and profits are growing strongly. In the medium term I am therefore optimistic about this sector. Despite the sometimes high valuations the bull market will continue in this sector also for Asian tech stocks.
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