Early in January, the Democratic Party won both Senate seats up for grabs in the Georgia runoff election. Victory means that the Democrats have secured control of the White House and Congress, with the Senate seats split exactly between the two parties. This is a significant boost for Joe Biden, though he might still face difficulty in getting some of his more contentious proposals enshrined in law.
In economic terms, there is now an increased likelihood of further fiscal stimulus and infrastructure spending.
Financial support from the Biden administration means US households’ finances are likely to be in better shape than they might otherwise have been. Although we can’t say for certain when things will return to something resembling normal, the development of vaccines means this is now a question of “when” rather than “if”. Once this moment arrives, consumers will be able to go out and spend, making up for lost time. Even after this time, we do not think the authorities will want to take any chances, so will continue to be generous with their support. Strong consumer sentiment and a supportive government should be positive for economic growth, and this should see a continuation in the change of market leadership.
Companies in cyclical and economically sensitive sectors (autos, industrials and financials, for example), have been hit hardest by the virus. As the economy recovers, these “value” stocks stand to benefit from a normalisation of economic activity. Despite the large rally in the valuations of these companies since the vaccine announcements in November, these investments remain attractively valued. However, the new US administration raises the prospect of higher taxes and increased regulation. The market darlings of the past few years have been growth companies dominated by the technology sector. Many senior Democrats are on record stating that “Big Tech” should be reined in. It was telling that the share prices of these major technology companies fell following the Georgia election results. These have languished since, while the aforementioned “value” stocks focused within the old economy have performed strongly.
Charities should be asking their investment managers if the equities in their portfolios are positioned to benefit from this change.
Charles Auer is an investment associate at Ruffer
Ruffer LLP is a limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct Authority. The information contained in this article does not constitute investment advice or research and should not be used as the basis of any investment decision.