Like most of this year, the U.S. is in unprecedented times when it comes to the election. However, once all of the potential legal challenges are cleared up, it will be time to keep an eye on President-elect Joe Biden’s policy proposals. As it stands, there could be mixed implications for investors.
Based on a report by T. Rowe Price investment professionals, the thought is to expect President‑elect Joe Biden to push for another fiscal stimulus package, including the funding for municipalities. This would help the economy continue to recover from the steep downturn caused by the Coronavirus pandemic. However, given Biden’s support of corporate tax increases, it would be used to fund some additional spending. Given Republican opposition, enacting this move is not guaranteed.
“The economy is weakest at the state and local level, where governments need help to mitigate cuts in essential services amid quickly declining revenues,” states Mark Vaselkiv, T. Rowe Price’s CIO for Fixed Income.
In the short term, Biden’s outlined tax hikes could reduce after‑tax corporate earnings and collectively reduce after‑tax profits for companies in the S&P 500 Index. However, some industries could benefit from increased spending, leading to an “earnings reset.” That said, the effects would still be manageable and partially offset by fiscal stimulus.
Putting Pressure On China, Energy, and More
As far as other areas of investor concern, there’s also China. Biden has suggested taking a tough stance toward China on market practices, though he may seek multilateral partnerships to address these issues. There are ongoing tensions, though the thought is that Biden will continue addressing concerns about intellectual property rights in the technology sector.
If volatility lessens, there could be a positive outcome for tech companies that are perceived to have trade tensions between the U.S. and China. That said, there may be more tensions for Biden to face when re-engaging more constructively with allies on trade while seeking to re-shore supply lines and manufacturing jobs.
Looking at energy, Biden plans to seek higher levels of federal procurement spending and tax incentives for the sake of rebuilding infrastructure. This would be done with clean-energy and other climate-focused aspects in mind, despite possible opposition from Republican Congress members. These ambitious plans could accelerate advances in energy efficiency and emissions reductions, playing well to many beneficiaries.
With a plan to expand access to health care, Biden’s policies, if implemented, could expand the market for Medicare-focused managed care organizations while potentially siphoning away some customers from private health insurance providers. Yes, there is a chance of negatively impacting pharmaceutical stocks. That said, it doesn’t remain straightforward when dealing with health care legislation, given the various relationships politicians have with the pharma industry.
Lastly, when considering Biden’s regards toward the fossil fuels industry, the plan is to tighten regulation. This would likely result in higher compliance for gas and oil companies. Add to that Biden’s goal in ideally halting the issuance of new drilling permits on federal lands. Ideally, this would lead to more influence on energy company earnings.
T. Rowe Price currently offers four actively managed ETF strategies to navigate the markets, which are the T. Rowe Price Blue Chip Growth ETF (TCHP), T. Rowe Price Dividend Growth ETF (TDVG), T. Rowe Price Equity Income ETF (TEQI) and T. Rowe Price Growth Stock ETF (TGRW).
For more information and strategy related to active ETFs, visit our Active ETF Channel.
