Any changeover in power in Washington is liable to affect your investments. The newly installed Biden administration is not only of a different political party than the previous Trump administration, but it also has very different economic and socio-political agendas. While no one can predict the short-term movements of the stock market, there are some scenarios that seem more likely to play out under the new Biden administration.
These five main Biden administration priorities could each have a major impact on your investments. Bear in mind that not all of these policy objectives will reach fruition, and some may have beneficial as opposed to negative effects. As always, consult with a financial advisor to discuss the specifics of your own portfolio and how these factors tie into your investment objectives and risk tolerance.
A large factor in how stocks will perform in 2021 comes down to the speed and success of the coronavirus vaccine rollout. President Joe Biden has recently stated that there will be enough doses for every American to be vaccinated by the end of May. If that is true — and COVID-19 cases all but vanish — stocks may face another boom period. And if the economy fully reopens, Americans, who have been sitting on savings of over $1 trillion due in part to massive stimulus packages, are likely to unleash that spending. Rising consumer spending translates to higher corporate earnings, potentially fueling another run of stock prices.
Clean energy is a major priority for the incoming Biden administration, which wants to create 10 million so-called “green,” high-paying jobs. Biden has already canceled the controversial Keystone XL Pipeline, which would result in the loss of jobs in the fossil fuel industry. Although there are still many mountains to climb, Biden is likely to generate enthusiasm in the electric vehicle, wind and solar energy fields. Fossil fuels still aren’t going away any time soon, but the prospect of additional government funding in these fields could make select winners in the industry soar.
Biden’s infrastructure plans are sweeping. In addition to traditional infrastructure projects like roads and bridges, Biden hopes to create 1 million high-paying union jobs in the automobile industry. The Biden infrastructure plan also aims to develop zero-emission public transit, upgrade buildings and implement various projects tying in with his clean energy programs, such as climate-smart agriculture and a carbon pollution-free power sector by 2035. Infrastructure stocks may be in play during the Biden administration, particularly while he maintains Democratic control of Congress.
As of this writing, the Biden administration is days away from passing a massive $1.9 trillion stimulus bill, on the back of the multilayered stimulus packages already pushed through in 2020 under the Trump administration. All of that money flowing through the economy has certainly helped prevent America from slipping into a deep recession; however, there are fears that all of this money injected into the economy will result in rising inflation and interest rates. Just the whisper of these fears has already sent the Nasdaq market down nearly 10% off its highs, as of Mar. 4, and more damage may lie ahead. Guessing when inflation and interest rates will get out of hand enough to seriously damage the stock market is a bit of a mystery, however. The Federal Reserve has announced that it will do all it can to keep the economy humming along, not intending to raise interest rates through 2023.
Taxes and Wages
Biden has announced his intentions to raise taxes on the wealthiest Americans back to levels seen under the Obama administration, reinstating a top marginal tax rate of 39.6%. Biden is also pushing for a $15 federal minimum wage. The economic effects of these two policies are hotly contested, particularly the higher minimum wage, with some arguing it will help stimulate the economy while others are insisting it will be an economic drag. While neither policy is guaranteed to be instituted, it pays to be aware of the potential changes and how the market may react.
More From GOBankingRates
- If You Get a Stimulus Check, How Will You Use It? Take Our Poll
- How Long $1 Million in Savings Will Last in Every State
- 30 Essential Money Habits
- 27 Ugly Truths About Retirement