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Joe Biden has been declared president-elect after securing crucial swing states in the Midwest. With Biden at the helm, a split Congress scenario constrains fiscal stimulus but also implies a less burdensome regulatory environment. President Biden combined with a gridlocked Congress can provide a constructive backdrop for US risk assets. Overall, economists at HSBC remain overweight global and US equities amid highly supportive global monetary policy, ongoing fiscal measures and favourable prospects for global growth in 2021.

Key quotes

“Joe Biden has been declared president-elect after securing crucial swing states in the Midwest, including Pennsylvania. Meanwhile, the race for the Senate remains uncertain. The Democrats’ failure to win Maine makes it more difficult for the party to wrestle control of the chamber from the Republicans. The final outcome hinges on two run-off votes in Georgia on 5 January.”

“With Biden in the White House, a Democratic-led administration is expected to pursue a new round of fiscal stimulus to support the US economy. The magnitude of such stimulus will depend on the final configuration of Congress. In a scenario of a Republican-controlled Senate, the package is likely to be a significantly watered-down version of the Democrats’ $2.2 trillion proposal that came in late September.”

“A President Biden combined with a ‘gridlocked’ Congress can provide a constructive backdrop for US risk assets. Fiscal stimulus is still likely in 2021 as the US economy continues its recovery. There is diminished risk of the Democrats implementing some of the more business unfriendly aspects of their policy agenda, including a hike in corporation tax and tougher regulations. President Biden is likely to adopt a multilateral approach to dealing with trade disputes that can help reduce economic uncertainty and market volatility. Although there is a risk of fiscal policy under-delivery, the US Federal Reserve may end up compensating for this via more aggressive monetary policy stimulus.”