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President Biden’s first 100 days

Given the sizable spending that will pair with President Biden's initiatives, we see fiscal policy as a positive, especially over the next couple of years.
March 2021

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Not letting a second of celebration set in, President Joe Biden is pursuing an aggressive path toward enacting his political agenda. Within 24 hours of taking office, the president signed many executive orders regarding regulations and COVID-19 precautions. Moving forward, we expect Biden to use many tools at his disposal as the commander-in-chief to enact his regulatory agenda. However, major accomplishments will only come through legislation from Congress.
The president and his team have put forward an ambitious agenda, including large amounts of spending in the areas of infrastructure, green energy and state and local government relief. Given the narrow control Democrats have in Congress, a large portion of the agenda will depend on whether the president wants to take a bipartisan approach or move legislation through quickly in a partisan manner using reconciliation. We think the latter is most likely.

U.S. policy and investment implications

Domestic agenda
International policy
Biden agenda
• Corporate tax increase
• Pharma pricing
• Reinstate EPA regulations
• Infrastructure
• Personal tax increase
• Minimum wage increase
• Expand ACA
• Student loan forgiveness
• Multilateral instead of unilateral action
• Restore full U.S. membership in WHO
• Try to rejoin Iran nuclear deal or negotiate new deal
• Create new climate standards
• Take more aggressive approach toward Russia
Source: BMO Global Asset Management

COVID-19 relief

The president’s response to the COVID-19 pandemic is his first priority. The administration has already made it clear that their goal is to vaccinate at least 100 million people within the first one hundred days of Biden’s term. The first major fiscal item to be considered will be a COVID-19 relief package. Though the president would like this to be bipartisan, many Republicans have seemed hesitant to spend additional funds and disagree with some of the more controversial initiatives, including a $15 minimum wage. As presented, the bill calls for around $1.9 trillion, including $1,400 stimulus checks. A group of moderate Republican Senators countered with a $600bn bill, but we believe President Biden will try to proceed with his current bill. Ultimately, our expectation is that the Democrats utilize reconciliation on a final bill with a price tag modestly lower than the $1.9tn bill and without the more controversial aspects such as the $15 minimum wage. Regardless of how the bill is passed, we see this as a positive for both the economy and risk assets. Income substitution is a viable way to keep money in the pocket of the consumer, and adding to the record savings rate of Americans will lead to an explosion of pent-up demand once life normalizes.

Tax reform

Another top priority of the Biden administration will be reforming the tax code to bring in additional revenue for the increased spending. During the campaign, then-candidate Biden framed tax increases on the rich and corporations as a moral issue. We expect tax increases through another bill passed along partisan lines later in the year. Under this anticipated bill, the headline corporate tax rate will likely increase on the margin, but given narrow majorities may be harder than expected. Additionally, taxes on foreign earnings will likely increase in a substantial manner.
On the personal side, we expect the marginal rate for those making over $400,000 to increase to 39.6%. We do not expect other proposals such as capital-gains tax increases, a wealth tax or a financial-transaction tax to pass through Congress. Additionally, we believe there is a decent chance for an increase in the state and local tax deductibility limit, as that has been a priority for Democrats from high income tax states. Increased corporate income taxes will hit company earnings, but in the short-term, we believe that massive fiscal stimulus will outweigh the tax threat. Additionally, more moderate members of the House and Senate will likely water down some of the more controversial options.

Infrastructure and energy bill

Outside of COVID relief, infrastructure provides the best hope for bipartisanship The president is widely expected to unveil a massive spending bill during his first joint session of Congress. The bill currently being telegraphed by the White House will be between $2 trillion and $2.5 trillion in scope. This package would be spread out over five years with the majority going toward traditional infrastructure projects like roads, bridges, airports, etc. However, we also expect this bill to be a down payment on Biden’s promise to tackle global warming. A large portion of the funds will go toward green-energy projects, new technologies to limit carbon emissions and upgrading the U.S. electric grid. Traditional infrastructure companies as well as green-energy companies stand to benefit from this bill.

Trade and foreign policy

We expect a vastly different approach to trade and foreign relations from the Biden administration. As of this date, the U.S. has already rejoined the Paris Climate Accords and the World Health Organization, undoing moves by the Trump administration. On the trade front, the use of tariffs as a diplomatic tool will decrease significantly, especially with regards to the EU and other traditional allies. However, we expect relations with China to remain chilly. Tariffson China may be reduced over time, but other Trump-era restrictions will stay in place. The cold war between the U.S. and China will continue as intellectual property, technology transfer and supply-chain concerns remain unresolved.

A note on technology companies

Big technology companies, especially the Silicon Valley giants, have been under investigation by the Department of Justice and virtually every state in the union for anti-competitive practices. We do not expect these investigations to necessarily increase in speed, but we do believe charges will be filed at some point during the Biden administration, with Google the most likely target. Additionally, it appears that the controversial protection for tech companies, Section 230c, will at least be up for debate as the incoming Secretary of Commerce has expressed her support for changes. Finally, as mentioned above, a minimum corporate tax would hit Big Tech if enacted. Given all of these headwinds, it is possible technology companies will not exhibit the same growth as in the past.

Healthcare and pharma

Narrow majorities in the House and Senate make liberal healthcare priorities like “Medicare for All” and a public option unfeasible. We expect less sweeping changes to the health-insurance market, such as increased subsidies and an expansion of the Affordable Care Act. These changes will help managed-care companies, while health-insurance companies can breathe a sigh of relief. The pharmaceutical industry, on the other hand, will likely be hurt. It is a bipartisan priority to enact some sort of price controls in the prescription-drug market, but we do not expect the changes to be as drastic as initially feared.

Portfolio positioning

An administration that will increase the regulatory burden on business and raise taxes does not seem like a market-friendly election outcome. However, given the sizable spending that will pair with these initiatives, we see fiscal policy as a positive, especially over the next couple of years. We remain pro-risk in our portfolios, as we believe synchronized global growth will continue as populations get vaccinated and hard-hit areas such as tourism, dining and entertainment return to some sort of normalcy. Americans are currently sitting on record savings and will deploy that capital once things normalize, and emerging-market companies are inundated with back orders and supply-chain issues. Given these factors, we are currently overweight both large- and small-cap U.S. equities, as we expect a broad-based recovery. Additionally, we are overweight emerging-market equities and are using core fixed income as a funding source for all overweight equity positions.

Disclosures

This is not intended to serve as a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This presentation may contain forward-looking statements. “Forward-looking statements,” can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof, or variations thereon, or other comparable terminology. Investors are cautioned not to place undue reliance on such statements, as actual results could differ materially due to various risks and uncertainties. This publication is prepared for general information only. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested.
Foreign investing involves special risks due to factors such as increased volatility, currency fluctuation and political uncertainties. Investing in emerging markets can be riskier than investing in well-established foreign markets.
Past performance is not necessarily a guide to future performance. Asset allocation does not ensure a profit or guarantee against loss.
BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management and trust and custody services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).
BMO Asset Management Corp., BMO Private Bank, BMO Harris Bank N.A. and BMO Harris Financial Advisors, Inc. are affiliated companies. BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Not all products and services are available in every state and/or location.
Securities, investment advisory services and insurance products are offered through BMO Harris Financial Advisors, Inc. Member FINRA/SIPC. SEC-registered investment adviser. BMO Harris Financial Advisors, Inc. and BMO Harris Bank N.A. are affiliated companies.
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