What To Expect From A Biden Presidency- Initiatives And Governance
• Infrastructure. While there is broad bipartisan support for some kind of infrastructure bill, it was not a top priority under the Trump administration, and there is generally stronger support for a more comprehensive bill on the Democratic side. Infrastructure may be an early priority for a Biden administration as it seeks a bipartisan win. Any infrastructure bill would probably be subject to a filibuster, so the two parties will need to find trade-offs that are ultimately acceptable to both sides.
• COVID-Related Fiscal Stimulus. While the parties have different priorities, they ultimately have found ways to work together to provide COVID-related stimulus. We expect the need for any further stimulus may be winding down by the first quarter of 2021, but if needed, we believe that the parties would ultimately work together to pass further stimulus under a Biden administration, just as they did under a Trump administration, even if the process in getting there is still adversarial.
• Federal Reserve Independence. As president, Trump has been highly critical of the Federal Reserve (Fed), a traditionally independent institution, but thus far the criticism has mostly been about political positioning, and the market impact has been negligible. Nevertheless, a Biden presidency may lower the risk of financial destabilization due to a politicized Fed.
• Municipal Finances. Support for state and local governments may be a higher priority under a Biden administration, including some mitigation of the cap on state and local tax (SALT) deductions and some temporary support, if not already in place, to address COVID-related weakness. Any support may lower municipal bond default risk, which would benefit municipal bond investors. The prospect of higher taxes may also increase municipal bond demand from tax-sensitive investors.
Conclusion
Historically, there has been no clear-cut pattern of either the markets or the economy performing better based on presidential party. Of course, we’re not concerned with history but with what lies ahead. It’s true that the Democratic Party has multiple wings, and the left wing of the party is arguably more left than in years past, but Democratic primary voters opted for a more centrist candidate. We foresee some market risks in a Biden presidency, but no more than in an Obama presidency, which had a strong stock market record. There are potentially areas of the market to gravitate toward if Biden takes the White House, some of which may be priced in by Election Day. However, just as we argued there was no real reason to sell stocks simply because of a Trump presidency four years ago, we do not see a particularly strong reason to fear a Biden presidency from a market perspective today.
Next week, we’ll take a closer look at the potential market upside of President Trump winning reelection in November and the impact of his likely policy priorities over the next four years.
Ryan Detrick is LPL Financial's chief market strategist.