Last week was a very intense week that left most people, regardless of political leanings, very anxious as ballot counting continued through the end of the week.
It appears that former Vice President Joe Biden will be the next President (legal challenges and recounts leave some uncertainty but are not likely to shift the overall outcome). His inauguration is January 20th, so let us look at what to expect with his presidency and how it could impact your portfolio:
1. COVID-19 Pandemic
With rising cases, it is expected that Biden will rely on the advice of health experts who may recommend a federal mandate for masks and social distancing. We expect an effort to increase testing and tracing until a vaccine becomes widely available (we got some good news today from Pfizer on their clinical trials). Assuming the FDA approves at least one vaccine by early January and mass immunization of the general population starts shortly thereafter, economic growth could pick up sharply in the 1st half of 2021.
2. More Fiscal Stimulus
Many expect a bi-partisan deal offering aid to those impacted by COVID. The timing and amount of stimulus are hard to predict, but a package could include expanded eligibility and extension of unemployment insurance, new funding for the Paycheck Protection Program (PPP), aid for state and local governments, and additional funding for COVID-19 public health efforts. Another round of payments to individuals is less clear.
3. Foreign Policy
President-elect Biden could partially reverse the course that President Trump was on by easing tariffs, updating trade agreements, and re-instating certain treaties. The effect of a Biden presidency on tensions between the U.S. and China remains unknown.
President-elect Biden made increasing taxes on corporations and wealthy Americans a centerpiece of his campaign. His ability to do this will be impacted by the outcome of a January double runoff in Georgia for Senate seats. If the Democrats win these Georgia Senate races, they will control the Presidency and the House, and the Senate would be split 50-50 with the deciding vote going to Vice President-elect Kamala Harris. If these two races are split, then the Republicans will enjoy a 51-49 majority in the Senate and the President’s ability to push through anything but modest tax reform will be compromised.
President-elect Biden may use executive orders to reverse some of Trump’s executive orders – especially with regards to certain immigration issues.
How does this impact the stock market?
We have seen equity markets respond positively since the election; however, we cannot forecast how long the honeymoon will last. We do believe that corporate earnings will improve significantly in 2021 and that is what is most important to investors. We are continuing to focus on long term investing using a disciplined approach.
How does this impact my finances?
Few policy experts believe President-elect Biden will address tax policy right out of the gate. Instead, he is expected to focus attention on seeking Congress’s support to enact his more immediate coronavirus relief package to help shore up the economy. We will continue to monitor how this may impact your finances.
Fiscal legislation stalled last week and with the current stimulus expiring President Trump this weekend signed new executive orders to provide temporary relief and hopefully help break the current gridlock in Washington. There are four key areas that we will take a closer look at:
1. Extend Unemployment Insurance – The $600 in additional weekly unemployment benefits under the CARES Act expired at the end of July. The executive order will provide $400 a week in extra benefits to anyone receiving at least $100/week in regular benefits with 75% being paid by federal funds and 25% being paid by the states. This order is designed to be a temporary stop-gap until more permanent solutions are passed. As a result, the extra $400 a week benefit may last another 4-6 weeks for individuals.
2. Deferral of Student Loans – Under the CARES Act no payments and no additional interest was set for all Education Department loans and this was set to expire September 30th. The new executive order will extend these benefits until the end of the year (December 31st).
3. Minimize Evictions and Foreclosures – The CARES Act provided protection for evictions and foreclosures but the dates they expired were different. The new executive order aims to provide more protection to prevent evictions and foreclosures due to COVID. The order should make funds available to aid renters and homeowners that cannot meet their obligations. The order also instructs the HUD and Treasury secretaries to make funds available to assist renters and homeowners unable to meet their obligations.
4. Payroll Tax Deferral – The executive order will stop automatic withholding of employee paid Social Security tax of 6.2% for employees who make less than $4,000 every two weeks (approximately $104,000 per year) until the end of the year (December 31st). This is the most complex and controversial part of the executive orders. The challenge is that technically only Congress can reduce or eliminate payroll taxes so for this to go into effect there must be a reasonable expectation for Congress to move forward with this. The payroll tax deferment is scheduled to take effect on September 1st.
The goal of these executive orders is akin to slapping tape on a leaky pipe. They will provide temporary relief but do not make the situation permanently better. If these policies are indeed implemented, this suggests that they might force Congress to act by the start of September to avoid further disruptions.