Following Democrat Joe Biden’s projected U.S. election win, CNBC Make It considers where best to put your money.
Global stock markets rallied sharply on Monday, after Biden was named U.S. president-elect over the weekend, and were propelled even higher by promising news of an effective coronavirus vaccine.
The all-important election proved closer than expected, with forecasts of a Democratic “blue wave” — which many financial analysts had expected — quashed. The projected Democratic House and a Republican Senate also look likely to limit the amount of dramatic policy change Biden could enact as president.
But what does this mean for markets?
David Henry, investment manager at U.K. firm Quilter Cheviot, told CNBC via email that history suggests this election outcome could actually be the “best-case scenario” for stock investors.
Analysis of all possible political scenarios going back to 1945, he said, showed that a Democratic president alongside a split Congress generated the best average annual returns for the U.S. stock market, of nearly 14% in dollar terms.
As it stands, the Democratic party is projected retain its hold of the House of Representatives. Control of the Senate is still to be determined, with run-off elections for two seats in the state of Georgia in January.
However, asset manager BlackRock said Monday that a Democratic takeover of the Senate looked unlikely. As such, it said a split Congress would constrain the ability of a Biden administration to introduce a larger economic stimulus package, public spending, tax or health reform, and climate related-legislation.
When it comes to specific stocks, Quilter Cheviot’s Henry said that if Congress was split, there wouldn’t be “strong, single-minded legislature to curb excessively successful business models.”
“We should expect companies which were doing well before the election to continue doing well,” he added.
According to Willem Sels, chief market strategist at HSBC Global Private Banking, technology and healthcare stocks were likely to benefit, as markets have “feared more regulation” in these sectors.
As such, HSBC remains positive on technology themes such as online consumption, automation, 5G and health tech, Sels added.
‘Fewer trade wars … more trade negotiations’
The 2020 election followed a difficult four years for international relations under current President Donald Trump, who sparked a trade war with China and multiple disagreements with Europe.
Louise Dudley, global equities portfolio manager at investment manager Federated Hermes, told CNBC over the phone that a Biden presidency could see a possibly “softer … certainly more collaborative” approach to global trade relations.
She said this would likely mean less “macro, top-down” stock market volatility, as seen over the last few years with Trump, with “maybe fewer trade wars and maybe more trade negotiations.”
This would create a better business environment for companies that thrive on certainty, Dudley added.
Examples would include companies linked to the U.S. Council for International Business group, Dudley said, which has senior executives from big-name companies like Microsoft and Pfizer as its trustees.
Quilter Cheviot’s Henry said that if the U.S. became “more outward looking … with some kind of move back towards globalization” under Biden, he expected the benefit of this to “filter out globally.”
“Regions which are a little more sensitive to global economic growth would likely benefit – Europe and Japan in particular, through their prominent manufacturing sectors,” he said.
Even with the constraints of a likely split Congress, Dudley highlighted Biden’s plans to tackle climate change as another area for investors to watch.
Biden has pledged to rejoin the Paris Agreement, the international plan for tackling climate change, which Trump announced the U.S.’s withdrawal from in 2017. Biden also has plans for the U.S. to reach net-zero carbon emissions by 2050.
Dudley said this could again be seen as a “collaborative move,” as the likes of China and Europe have also implemented similar climate goals.
In the U.S., she suggested possible increased infrastructure spending around this environmental refocus would benefit industries such as electric vehicles, batteries, wind and solar.