Voters reject extremes in US elections
The victory of President-Elect Joe Biden, a centrist, in the 2020 US election showed that voters reject the extremes of the far left and the far right, said US economist Larry Hatheway at the latest PSG Think Big webinar, which was hosted by Adriaan Pask, Chief Investment Officer for PSG Wealth.
Biden won the popular vote convincingly, as well as the electoral college votes which, after all, are the deciding factor. But with few exceptions, Biden won individual states with narrow margins.
“The results were a narrow repudiation of the President himself, while also showing that a large swathe of American voters is broadly comfortable with Republican policies,” Hatheway said. This is evidenced by the fact that ‘down ballot’ several Republican seats thought to be in jeopardy, stayed in Republican hands.
The result is that Biden has no clear mandate on a number of key issues such as economy, healthcare, environmental policy, and social justice, to name a few.
This is perhaps to be expected as candidate Biden’s primary campaign platform was the coronavirus pandemic and President Trump’s poor handling of the health emergency. “It’s not surprising that Biden has moved swiftly to appoint a team of medical experts to lead his plan to combat the virus,” Hatheway said. Notably absent from the team is Dr Anthony Fauci who in recent months has come under increased criticism by Trump for his refusal to fall in line with Trump’s assertion that the virus is ‘no big deal’ and will ‘eventually just go away.’
Pask asked Hatheway what might be expected from Biden’s first 100 days in office.
“President-Elect Biden will face a number of issues when he takes office 20th January next year. On the economic front, Covid-related unemployment will be a huge challenge, which will have to be addressed by stimulus plans, prevention policies such as a nation-wide mask mandate, and ultimately by a vaccine,” Hatheway said.
Unemployment is not the only economic issue, however. “There is now a deep sense of the need for economic fairness, that the gap between the haves and the have nots has become far too wide, and that Wall Street is not an accurate proxy for economic well-being,” Hatheway said.
The window of opportunity for getting this right is the four years before the next presidential election in 2024. At that point, the electorate will be asking themselves the simple question, ‘am I better off now than I was during Trump’s presidency.’
Healthcare was a big political issue before the pandemic, with the incumbent Republicans continually trying to get the Affordable Care Act, also known as Obamacare, overturned, and has become even more of an issue now during the pandemic. A case to overturn the Act is set to be heard by the Supreme Court shortly, and if successful, will force Biden back to the drawing board on how to provide the best possible care for the highest possible number of Americans. Police reform will also be an issue in addition, of course, to trade and foreign policy, anti-trust laws and climate change.
Pask also asked about the ever-growing deficit in the US, and whether that will be a problem for the Biden presidency. Hatheway said that with the pandemic still raging, and increasing numbers of Americans slipping into poverty, stimulus programmes will take precedence over cleaning up the ‘deficit mess’ left by the Trump administration.
Broad implications for markets
Turning to the impacts of the election on markets, Hatheway said that over the next 6-18 months, US growth will be determined more by how well the pandemic is controlled than by economic policy. At the same time US fiscal response is likely to be constrained by the Senate, unless Democrats pick up both Georgia senate seats that are scheduled for a run-off on 6th January.
Hatheway further said that while Biden will ‘cool’ the trade war rhetoric, globalisation will remain stunted.
All in all, falling risk premiums should steepen yield curves and support investors rotating into cyclicals and value stocks as well as emerging markets.
“Falling risk premiums and the US Fed’s steadfast commitment to reflation will push the US dollar lower in foreign exchange markets, which will be good for South Africa.”