With the 2020 election cycle now complete, we can turn our attention towards the impact on markets and investors. As we do so, it is important to remember that economic and market fundamentals matter more than who controls Washington. Evaluations of the political climate must be balanced with the views of businesses and the overall economy, which is particularly important as we continue to navigate the COVID-19 crisis. That said, with the political outcome now in hand, we can focus on the priorities in a Democratic controlled Washington and start to evaluate what’s likely versus not, given the narrow margins in Congress.
COVID-19 continues to dominate the investment and economic landscape and President Biden has been vocal that addressing COVID-19 will be the highest priority as his administration takes office. There will certainly be healthy debate on the scope of the additional stimulus, but there is enough support on both sides to allow confidence that additional stimulus will be passed early in 2021.
While Democrats have captured the majority, it is a razor thin margin and that has real implications for the policy landscape. Given the split in the Senate, it is unlikely that many of the bold, progressive policies that were outlined during the campaign will come to fruition. That includes significant tax reforms, Green New Deal, Medicare for All, etc. where centrists in both parties will ensure these policies do not see the light of day.
So if we don’t expect sweeping reforms, what are some of the more likely outcomes of a Democratic-controlled Washington? Control of Congress is important – in the coming years, Democrats will be able to steer debates, chairmanships, and look to unwind certain Trump policies with a simple majority. Democrats will also likely push modest tax increases, more environmental regulations, and expansion of Obamacare. Given the margins, Democrats will likely need to cross the aisle to garner support for some or all of these more modest policy priorities.
Lastly, it’s worth noting that a unified Democratic establishment is nothing new. In fact, it’s been the most common political environment over the last nearly 100 years.
Market returns during Democratic-controlled periods have been above average historically, but investors should be cautious about placing too much emphasis on past market cycles, or the rhetoric of the campaign trail. Ultimately as investors, our success over the coming years will be driven by many factors, politics being only a small part of the large puzzle. You can read more about our Post-Election Market Analysis here.
As the political landscape evolves and changes, we will continue to make adjustments and communicate our thoughts with you. If you have questions about how the election impacts your financial well-being, or are interested in what changes we can and will make in your investment portfolio, we encourage you to reach out to your RegentAtlantic team.
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