Investment update: US Election and vaccine developments

by Brendan McLean   •  

In the last few weeks there have been some significant world events: the results of the US Presidential Election and encouraging news regarding a Covid-19 vaccine. Both pieces of news caused US equity markets to hit new record highs and Japanese equity markets to hit highs not seen since 1992.

Markets upbeat on Biden victory

It is widely accepted that the Democrat candidate Joe Biden won the White House. The current Republican President Donald Trump has not yet admitted defeat, claiming election fraud, however, he has now accepted that a formal transition should begin for President-elect Biden to take office

Although the result as it stands demonstrate a Trump loss, he performed much better than indicated in most opinion polls; the expected “Blue Wave” of a clear landslide Democrat victory did not happen.

The outcome is that the Republicans seem on track to retain control of the Senate, while the Democrats will continue to control the House of Representatives, albeit with a smaller majority due to Republicans gaining seats. This will result in a gridlocked political system, making it challenging for President-elect Biden to create new policies. The markets have responded well to the expectation that Biden will not be able to undo Trump’s policy on lowering US corporate taxes.

Election outcome: climate change

Trump was not a supporter of the Paris Agreement (a global response to the threats of climate change). He felt the nature of the Agreement was not in the  best interests of the US as he believed it would cost millions of jobs and see trillions of dollars going to the world’s worst polluters. Biden has committed to re-joining the Paris Agreement which will involve setting climate change goals to reach net-zero emissions by 2050. This will have major implications for investors, and companies, and will likely see growing demand for climate-related investments. Biden promised voters he would spend $1.7tn on the transition to a low-carbon economy – a major boost for the sector.

Election outcome: China

It is expected that Biden will be less confrontational with negotiating overseas trade policies, in particular with China. Negotiations with China were turbulent; Trump imposed various taxes on Chinese goods and China did the same in response. If Biden can agree more favourable trade deals it will enable US companies to sell their products more successfully across the globe. More importantly, it will make planning much easier and businesses more likely to invest.

Vaccine boost amidst second wave

There has been a wave of optimistic Covid-19 developments. Two US firms, Pfizer and Moderna, have developed vaccines which are showing 95% protection in early tests, and the UK based Oxford University in collaboration with AstraZeneca plc, has a vaccine showing 70% protection. A key benefit of the Oxford vaccine is that it is easier to store and distribute globally; Pfizer's vaccine needs to be stored at -70°C. In addition, Oxford University has made a ‘no-profit pledge’ which should make the vaccine cheaper than the others. This is encouraging news indeed. However, a second wave of infections, accompanied by rising death rates and hospitalization rates, has forced many governments including the UK to reinstate some form of lockdown. Until a vaccine is widely available, many people will continue to lose their jobs and economic growth will be severely impacted.

In summary, the changes discussed will continue to gain positive investor sentiment. However, there are still a wide range of economic risks and a great deal of uncertainty. The results of the election are still not finalised; the vaccines are still not available and government debt is extremely high. It is important for investors to maintain highly diversified portfolios, which are not dependent on one source or region for returns, and to speak to their investment advisor if they have concerns.

Further reading

Government spending in response to Covid-19

by James Sweetnam   •  

Adding value for the PPF

by Julie-Anne Jones   •  

Lessons learned

by John Wilson   •  

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