A tumultuous start to the new year with riots in Washington DC and tightly contested US Senate run-off, gave way to a peaceful start of the new Biden administration at the White House.
However, the Democrats’ mandate is among the narrowest in 60 years. Biden won the presidency with a 51% majority compared to Obama’s 53% in 2008.
The ANZ Chief Investment Office (CIO) believes that despite the narrow Democratic majority, the proposed fiscal stimulus package will be passed by the US Congress, albeit possibly in a watered-down version. Fears about major tax or regulatory changes may also be overstated from the investment office’s view.
Reflecting the upbeat and welcoming mood for the Biden administration, markets reached all-time highs in early January before some sell-off toward the end of the month.
From the ANZ CIO’s perspective, there are still conflicting factors at play weighing on investor sentiment, namely:
- Positive prospect for the US stimulus package
- Vaccine-driven momentum supportive of the markets
- Ongoing Covid-19 cases in some countries
While vaccination has started in several countries, new cases continue to be reported in key cities forcing governments to enforce full or partial lockdowns.
This push and pull factors remain a big consideration for ANZ’s investment office which maintains that any downside disappointments – due to slow vaccine roll-out or less stimulus package – may cause short-term volatility in the markets.
Overall, the investment office expects a gradual re-opening of economies over the next six months. Though the speed of re-opening may vary from country to country, the long-term outlook remains upbeat.