Reshaping the road ahead

Over a week ago, President Joe Biden was sworn in as the 46th President of the United States. The agenda of the new president, is by far different than that of the former, especially when it comes to certain topics such as climate change. In this article, I shall be looking at the potential impact of Biden’s agenda on the US economy and financial markets. I will also be looking at which sectors are expected to be benefitting from this agenda and those expected to be negatively impacted.

The appointment of Mr Biden comes at a time where economic growth will definitely be a top priority. This may also result in higher interest rates during the first year. These outcomes will be dependent on whether the agenda is approved, as well as how quickly his ambitious plan to speed up vaccination, can lessen the spread of the virus.

The stock market has already drifted higher on expectations about Biden’s new policies. In fact, if we had to compare the statistics issued by the CFRA, which is one of the world’s largest independent investment research firms, since the election, the S&P 500 advanced by 13% – which is the largest for any president since at 1952.

A day before the inauguration, Wells Fargo & Company, an American multinational financial services firm, raised its US economic growth forecast for this year from 3.8% to 4.7%. The firm also expects the 10-year US Treasury yield to rise (value of bonds decline) to a range of 1.25% to 1.75% by year-end, from a previous forecast of 1% to 1.5%. As explained by the institution, the revision of the forecasts was mainly due to better than expected economic numbers and positive vaccine rollout news.


The Shift into Cyclicals

The stimulus program accelerated the market rotation which has begun ever since the election result, as investors are shifting from growth names to cyclicals. The latter are those sectors whose profitability is highly dependent on the economic situation. In fact, cyclicals have outperformed other sectors notching gains of up to 15% as at the time of writing. Financials and Materials have also registered mid-single digit gains.

There is a concern that Democrats could move to regulate or raise taxes for big tech. The year-to-date performance for the tech sector has declined by almost 1%, while communication services which include names like Facebook, Amazon, Netflix and Google, declined by 2% during the same period.


A Revamped Energy Sector

President Biden has aimed for an ambitious target for the Energy and Auto industries. The aim is to reduce vehicles’ emissions substantially. The president intends to transition the country to 100% renewable energy for electricity generation by 2035 and net-zero emissions in the overall economy by 2050. Furthermore, oil and gas operations are being scrutinized as well — from how companies extract resources from the ground to the safety of pipelines that distribute the fuels.

Biden put the US back in the Paris Climate Accord and plans to promote clean energy in his infrastructure plan. Clean energy shares and ETFs have done considerably well since the election turnout. A global clean energy exchange traded fund, which tracks the performance of companies in the clean energy space, has risen by 55.8% since November 3, 2020. The effect of this revamp can also be seen in the Electronic Vehicle sector, which has seen an ever increasing demand throughout the past few months.


Uncertain times for Healthcare Industry

The healthcare sector has been performing well, with the US health-care sector gaining 3.8% since the beginning of the year, yet investors are feared that the Democratic polices might affect the sector.

Currently the industry is relying on vaccines and COVID treatments, with some investors thinking that the industry will not be subject to higher pricing. One of the reason behind this is the fact that the Biden Administration plans to increase subsidies in the Affordable Care Act, having a spill over effect on a decrease in drug prices.

In the first couple of days in office, President Joe Biden signed 17 executive actions, the vast majority of which covered Biden’s intention to dial up the national response to the coronavirus. Biden also undid some of the most odious aspects of Trump’s anti-immigration push. This was described as the starting of what is to come. The future looks rather bright for various sectors especially those which were pushed aside during the Trump era such as global warming and human wellbeing, yet it is rather difficult at this point to make a concreate judgement on what might lie ahead during Joe Biden’s term.

Julian Mangion, B. Com ICWIM is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]