Economic Policy Changes Under Biden
(6 min read)
The odds of a Democrat sweep in November have recently risen from 35% to about 60%
A Biden presidency would warrant lower equity prices, all other factors equal
Relative sector prospects would shift a lot, and that has shown up in recent pricing
A key policy thrust would be to boost wages relative to profits
The US presidential election is now just over 4 months away. The race is between incumbent Republican Donald Trump and Democratic former vice-president Joe Biden. A Trump re-election would imply a continuation of the (albeit very volatile) status quo. For financial markets, a Biden victory would imply more change.
The evolving pandemic and enormous policy response make a consideration of what new plans might be adopted after January 2021 even more uncertain than usual. The ongoing Covid-19 response could dominate all other policy considerations. Biden’s platform will be more explicitly fleshed out at the Democratic Party Convention, due to be held in Milwaukee, Wisconsin, from 17-20 August.
On balance, I would judge Biden’s policies (if enacted) as negative for equities. First, his plans would involve higher taxes on businesses. Second, his policies would bolster wages (support for unions and minimum wage hikes). Finally, he is likely to toughen anti-trust (monopoly) enforcement, which could put downward pressure on profit margins. In light of all this, it is interesting that the equity market has apparently remained unfazed in June by Biden’s rise in the polls and betting markets (Chart 1).
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