Policy change: Joe Biden to be the new US President: Investors have to be prepared for this | message
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Biden’s plans for infrastructure, healthcare, and tech companies
Biden on tax and energy policy with a different point of view than Trump
Perhaps not all plans are so easily enforceable
When Joe Biden is sworn in as the 46th President of the United States on January 20, there will not only be a change in power in the United States, but also a significant shift in the politics of the White House. In many respects, President-elect Biden takes a different line than his predecessor – in part, he supports the views and previous policies of Donald Trump even diametrically opposite. This should also have an impact on the stock market and produce new winners and losers there. Investors should therefore keep the following points in mind.
Targeting healthcare and tech companies
According to the analysts of the US investment management company Loomis Sayles, the high drug prices in the US will be the focus of attention after the election. As the experts at “Advisor Perspectives” write, Americans would pay more for drugs than people in other industrialized nations. Advocating price reductions is therefore an easy target for politicians from across the spectrum – which is why it should definitely be on the agenda and would have been there if Trump emerged victorious US election would have emerged. For the pharmaceutical industry, however, lower drug prices would mean lower profits. The analysts at Loomis Sayles have therefore reduced their investment in the pharmaceutical industry.
Loomis Sayles also expects US President Biden to be able to push ahead with US health care reform. However, according to the experts, it is a difficult undertaking to steer spending on state health insurance in new directions, so that the Democrats will only make slow progress – if at all. The Advisor Perspective therefore says that the risk for companies in the health sector, which would be affected by a reform, is greater from headlines in the press than from actual politics. However, according to Loomis Syles, there could still be a sell-off on the market. However, if the panic reaction turns out to be too great and higher risks are priced in than necessary, they recommend expanding positions in the health sector.
Another topic that was already on the agenda under President Trump and should remain topical under President Biden is the regulation of the tech giants. As the “Financial Times” writes, the companies concerned have already increased their lobbying spending, knowing that their market power is gradually becoming a thorn in the side of both Republicans and Democrats. “When companies start to become dominant, people get scared of their power,” JPMorgan Asset Management’s Lee Spelman told financial news site. Difficult times could now lie ahead not only for the tech giants Alphabet, Amazon, Facebook, Apple and Microsoft and their investors. According to the Socit Gnrale, other tech companies with user-generated content should also be targeted under Biden. According to the “Financial Times”, the strategists of the French investment bank see the possibility of an angry awakening under a presidency of the Democrats for Twitter, Pinterest and Snapchat.
U-turn in energy policy expected under Biden
One of the biggest changes under a Joe Biden presidency is likely to be in energy policy. Because unlike Donald Trump, the elected president is relying on a change away from the oil industry and, according to the “Financial Times”, plans to spend two trillion US dollars in his first term in order, among other things, to reduce the US’s carbon footprint and advance the electrification of the transport sector. According to the analysts polled by the news site, the already battered stocks – above all shale producers like Occidental and EOG Resources – will continue to suffer from these plans, while stocks of solar and wind power companies like First Solar and Renewable Energy Group will benefit.
The analysts of Loomis Sayles warn at “Advisor Perspectives”, however, that possible efforts by Biden’s government to reduce fracking could be delayed through legal proceedings. “In summary, we see more noise here than actual substance,” said the experts. Instead, they see a possible deal under US President Biden with Iran as a major issue for the oil industry, as this could increase oil deliveries and thus lead to increasing price pressure. They therefore recommend adopting a more cautious stance with regard to the US oil market – especially since valuations in this area would in some cases appear very stretched.
Biden could reverse tax gifts from Trump
The US investment bank Goldman Sachs told the Financial Times before the election that higher taxes were the “most direct consequences of a democratic landslide victory” for the companies listed in the S&P 500. While Donald Trump lowered the corporate tax rate in the US from 35 percent to 21 percent during his tenure, thereby fueling the rally on the stock market, Joe Biden would like to raise it again to 28 percent. According to the experts at Loomis Sayles, such a tax hike would hit the industries that have benefited the most: tech and finance. At “Financial Times” analysts from Socit Gnrale and JPMorgan count among others AT&T, Hilton Worldwide, General Motors, Walgreens Boots Alliance and the credit card provider Discover Financial to the biggest losers of such a step.
In addition to the higher corporate tax, Biden also wants to reduce tax-reducing facts and introduce a minimum tax of 15 percent for corporations whose profits exceed the mark of 100 million US dollars, according to “WELT”. This is to prevent them from inappropriately reducing their tax burden through computer tricks. Biden also wants to tax the profits that US companies earn in foreign branches more heavily – at 21 percent, twice as high as before. In addition, his planned tax policy provides for changes to the taxation of the 401k pension plan. According to “TheStreet”, people with higher incomes currently benefit more than average from the tax savings that they receive through their payments.
According to Goldman Sachs, if all of Joe Biden’s suggestions are implemented, that would reduce the profits of the companies in the S&P 500 by an average of nine percent. However, it is extremely unlikely that the 46th US president will be able to push through all of his plans, since the above-mentioned “democratic landslide victory”, in which the Democrats get control of the Senate and House of Representatives, did not happen. It will therefore be difficult for Biden to implement his plans for taxing US companies in the face of a Republican-dominated Senate.
Infrastructure program as a boost for the US economy
But even if Biden gets away with his tax plans, it doesn’t necessarily have to end in a downward spiral for the US market. Because, according to analysts, there is a major counterweight: the infrastructure program planned by the Democrats. According to JPMorgan, the shares of construction companies such as Caterpillar, Martin Marietta Materials and Jacobs Engineering would benefit from this, but the experts at Socit Gnrale also believe there is upside potential for stocks from utilities and railway companies such as CSX and Norfolk Southern. In addition, analysts believe that the infrastructure program would also have a huge positive effect on the entire US economy. You told the Financial Times that this program should help to dodge higher corporate taxes easily – and drive up stock market prices. The most euphoric was Michael Mullaney of Boston Partners to the financial news site. He believes the infrastructure program will not only give economic growth a boost, it will also provide “a much larger financial multiplier [sei] than anything that Trump has presented so far “.
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