Leaving aside the outstanding legal challenges from President Trump, it appears that the US election has now produced a result, and we expect Joe Biden to take up residence in the Whitehouse in January. In 2016, Donald Trump, at 70, edged out Ronald Reagan as the oldest man to become president. Joe Biden will be 78, which must leave a question mark over whether two terms will be a realistic possibility. However, it appears that, for the moment, we have a degree of certainty and stability in US politics. Democrats took the House of Representatives and will have control for another two years. It seems unlikely, at this stage, that they will win the Senate.
Whilst it is early to speculate about what President Elect Biden will be able or willing to do, we should expect a more engaged stance with environmental issues – good for renewable energy, a higher priority for Covid-19 – good for healthcare, and a more aggressive attitude to big tech, involving higher taxes and/or tougher regulation. Overall, international trade will be likely to improve, as Biden will be expected to ease tensions, rather than stoking them.
It has been a theme of our output over the past six months that technology has led a very narrow recovery in the US market since the bottom of the spring collapse. During the period from 31st March to 30th September, the information technology sector in the US has been the stand-out winner, whilst other sectors have fared much less well – some even returning losses. Financials, which often constitute a major part of equity portfolios, whilst returning a gain, have been a noticeable laggard:
In October, however, after a very strong recovery, markets began to falter, as the US election began to dominate the thinking of investors. A recommendation from Goldman Sachs on 16th October, to ‘temporarily’ rotate out of technology into banks and autos, added to the profit-taking that was already being seen in the tech sector. Over the month of October, financials came to the fore and achieved a small gain, against the backdrop of a falling market, and technology stocks clearly starting to roll over:
After an extended period of strong returns from the US technology giants, which has seen many of them rise to very high valuations (Apple reached a market cap of over $2tr), the prospect of a democratic president and possibly Congress, led many investors to focus on the possibility of increased taxation and/or regulation for the technology companies.
Chris SalacinskiDirector & Financial Planner