US elections

Joe Biden is the new president of the USA although Donald Trump is not admitting to it yet. We do, however, see the US equity markets rallying after a period of weakness, especially in the Technology shares. The reason for this is linked to the way the legislative process works in the US, and the expected policy changes by a Democrat Party President.

It was widely predicted in the polls going into the election that there would be a Blue Wave, with the Democrat Party not only holding on to their majority in the House, but also getting control of the Senate, which is currently in the hands of the Republicans. This would give the Democrats the power to not only initiate new legislation – the function of the House; but also to ratify the legislation – the job of the Senate.

As we all know, there are two big policy changes the Democrats would make. One is higher corporate and capital gains taxes, which would impact all companies and wealthy Americans; and the other is breaking up the Big Tech companies, which would be negative for their current valuations. Now that it seems like the Senate majority may remain Republican, these policy changes are very unlikely.

At the end of the day it does not really matter whether the President is a Democrat or a Republican. What does matter, is the environment for growth he or she creates. Trump trampled all over international free trade, which is counter-growth; but stimulated internal US growth with lower taxes. Simply because the US is the biggest economy in the world, if they do well, the rest of us also do well. Biden will probably restrict internal US growth with higher taxes, but will increase stimulus packages and re-ignite international trade, which is growth-positive.

So if we look at the success of the stock exchange under different presidents, we see the following:

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