A long US election season has ended with a sweep for the Democrats, delivering the party the White House and control of both chambers of Congress. Economists at UBS expect this to smooth the path for further fiscal stimulus, a positive for economically sensitive parts of the market. While Democrats’ razor-thin control of the Senate may make full implementation of President-elect Biden’s $2 T green spending proposals challenging, a blue sweep should provide impetus to the green agenda in the US.
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“A unified government will smooth the path to more fiscal stimulus. Statements from the president-elect suggest further spending proposals are likely to be put forward in the near-term. We think the reflation trade, which favors cyclical stocks, remains intact and has further to run. […] With the Federal Reserve unlikely to change course on monetary policy any time soon, we expect the move higher in yields will be limited. But we have a preference for both US and Eurozone financials, based on their attractive valuations and earnings recovery potential, driven in part by falling provisions.”
“The new administration may push for higher taxes, but we think any hike would be more limited in scope than the Democrats’ policy platform. The tax hike is also likely to be smaller than the potential overall spending increases (which might be passed through budget reconciliation) and may not take effect until 2022. On balance, President-elect Biden’s policies are likely to add stimulus to the economy.”
“President-elect Biden has said that a focus on climate change and ‘building back better’ are top priorities. However, Senate filibuster rules, which effectively require most legislation to meet a 60 vote threshold to advance, will remain intact. As a result, the previously announced $2 T climate change plan looks unlikely to be fully implemented, and there might be greater emphasis on more consensual centrist policies. But we expect continued regulatory, legislative, and fiscal support for environmentally-related themes. The December 2020 COVID-19 stimulus bill included a series of key policies that would support green tech industries: clean energy, smart mobility and energy efficiency, as well as the semiconductors that enable these technologies.”
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