Biden’s win changes the mood music for markets


The FT portfolio has been heavily invested in the US this year as the most likely place to offer growth and share price rises. It has also provided the best income on advanced country bonds in a world of near-zero rates.

As a result, the fund is up 6 per cent against a background of the typical balanced fund suffering a little due to the market falls in Europe, the UK and some emerging markets.

The US bucked the pandemic-driven trend thanks to the massive stimulus package from the Federal Reserve and the government from late March, and the pro-growth approach of the outgoing president. Donald Trump’s critics blame him for not taking the virus seriously enough, while Joe Biden made tackling the virus with more lockdowns and social distancing the central plank of his election platform.

In the past few days, optimism about a vaccine has changed the pattern in markets, as bulls hope for an early end to the pandemic.

I normally argue that central bank actions and the main consumer trends matter much more to investors than changes of government. On this occasion, the US presidential election matters a lot and has been important to the markets in recent weeks.

 Anyone who becomes president is turned into one of the world’s biggest celebrities overnight, with the most powerful pulpit. What a president says is important. Mr Trump knew this and used his Twitter account to tease the mainstream media, wind up his enemies and wow his followers.

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Mr Biden is already using this power to position himself differently. He wants the US to rejoin the world orthodoxies, be a good member of global bodies, embrace the green revolution and follow the mantra of lock downs whilst awaiting vaccines to handle Covid-19. What he says will usually be predictable and scripted from conventional wisdom. 

This is a very different US to Mr Trump’s. He pursued US self-sufficiency in cheap oil and gas, built oil-using industries to challenge China, freed the US of any need for Gulf oil, and spoke out for the freedom of those who want to run their businesses, drive their own gas guzzlers and criticise the interventions of Washington as unhelpful and costly to them personally.

Mr Biden will see himself as the advocate of all those east and west coast intellectuals, public service workers and large technology and media companies who swept him to power, and will work more smoothly with global elites. The immediate market response was indicative of what investors expect. The technology rich Nasdaq index rallied strongly as Mr Biden threatened more lockdowns and social distancing, which should boost revenues for online businesses. This was despite the worries of a tougher regulatory climate.

But Mr Biden’s victory will be born of rancour, with almost half of Americans feeling that the Democrats have in some way cheated them of their election win.

There are two Americas — the densely-populated coasts and the great rural interior; the public sector and protected America, and the many self-employed and small businesses owners who need to work to eat.

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In Biden’s world the virus is the main threat. More people can afford to stay at home and social distance to fight it, the state can do much more and is a force for good, and elite experts know best.

In Trump’s world people have to drive their truck and do their job to earn a living, experts often get it wrong, the mainstream media and Washington government exaggerate or lie to get their way. State intervention often does more harm than good, and people have a right to do things experts wish to ban.

Getting these two Americas to coexist happily will be a difficult challenge for Mr Biden. Assuming the Senate stays Republican, Mr Trump’s alternative America will have votes to prevent the new president taxing and regulating too much in ways Middle America cannot accept.

The recent news of vaccines coming close to receiving regulatory approval has prompted a sharp rally in areas that suffered badly from lockdowns and conduct rules, including travel and entertainment. Oil companies too have rallied a bit, but they remain under a cloud for their dependence on carbon-based fuels.

The immediate future is for Mr Biden to toughen the US response to the virus, causing more difficulty in sectors relying on social contact. As events play out markets will need injections of central bank cash and fiscal stimulus to stay at current high levels. The antivirus policies are still very damaging to economies, while the green and digital revolutions remain the main hopes for increased output and growth in specific ways. Joe Biden will be reinforcing both, creating plenty of opportunities for developing digital transactions, solar panels, renewable power and electric vehicles.

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For now, more monetary stimulus is likely, with fiscal stimulus in the US limited by political disagreements.

 I have switched some of the technology investment into more general world shares, and trimmed the successful US-led digital revolution investments.

The fund also has a position in index-linked bonds in case in due course the world decides to inflate its way out of debt. All the time central banks supply the money and vaccines are in the offing there is more scope for growth for the economies and sectors more dependent on traditional businesses.

Mr Biden will strengthen the green theme, so fossil fuel producers will stay in the doldrums. The fund reflects this outlook with its specialist index exposures to clean energy, battery technology, robotics and cyber technology.

Sir John Redwood is chief global strategist for Charles Stanley. The FT Fund is a dummy portfolio intended to demonstrate how investors can use a wide range of ETFs to gain exposure to global stock markets while keeping down the costs of investing. john.redwood@ft.com



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