Will Joe Biden’s presidency give you bang for your buck?

UK investors have seldom been so bemused by events in the US, which are more far-fetched than many movies now on Netflix. 

The inauguration of Joe Biden as the 46th president takes place on Wednesday amid unprecedented turbulence. Donald Trump faces impeachment following his supporters’ attack on the Capitol, as Covid-19 rampages from coast to coast. 

Almost as bewildering, but also a must-watch, is the extraordinary mood of the stock markets. The leading indices appear curiously unperturbed by the turmoil. 

There is a determination to accentuate the positives, such as the vaccine rollout, although the tighter regulation and more burdensome taxes faced by the Silicon Valley giants did cause the technology-heavy Nasdaq to falter a little this week. 

Is this the moment to sell these shares that have thrived in lockdowns, and bet on the ‘Dogs of the Dow’, the names that lagged behind in 2020, including Coca-Cola, IBM and Walgreens? 

Or is it better to assume that the shift to online has become permanent? Tech stocks may grow more modestly in 2021. But the S&P 500, which rose by 16 per cent in 2020, is still forecast to move upwards in 2021 to 4,000 or above, with Biden’s policies boosting both the economy and share prices. 

Bank shares are rallying and Americans are pouring money into clean energy funds to benefit from Biden’s $2 trillion green energy programme. America’s fourth quarter corporate earnings season has begun. If results reveal deeper-than-expected woe, the Biden administration may deliver extra stimulus cash, with $2,000 ‘helicopter money’ cheques to some households. 

A $900billion package has already been agreed, with the Federal Reserve, the central bank, also pumping billions into the economy. There are fears these subsidies could stoke inflation, sparking an interest rate increase and dampening market optimism. 

Yet, for the moment, the stimulus programme is underpinning share prices. The belief it will all end in tears led to an intervention from Jeremy Grantham, the 82-year-old British founder of GMO, a Boston-based group. He contends that US markets are in a ‘fully-fledged epic bubble state’. 

Most other professionals are more confident. Fiona Harris, US specialist at JP Morgan Asset Management (JPAM) says: ‘We’re hoping that this is the year of the vaccine, not of the virus and of the recovery, not the recession.’ 

She argues that the Biden administration will make stimulus its priority, rather than raising taxes. Although JPAM managers have trimmed some tech holdings, she explains that these titans may not, as is feared in some quarters, be enfeebled by more onerous regulation under the new president. The focus of anti-trust laws is on the potential damage to consumers, which would enable Google-owner Alphabet to claim free searches are a boon to users.

Janet Mui, investment director at Brewin Dolphin, believes the Democrats could be good for share prices: ‘We’re glass half-full about the outlook. The slim Democrat Senate majority means it will be harder to get more Leftwing measures through.’ 

Mui expects this will be the year when Asian markets outshine America, partly as a result of Biden’s more nuanced approach towards China. 

However most investors will want exposure to the US at this inflection point in its history. Thrill seekers could buy the ‘Dogs of the Dow’, hoping that the predicted switch to cheaper, ‘value’ stocks comes to pass. Some would probably prefer a broadly-based fund, such as Dodge & Cox Worldwide US Stock which has tech stakes, but holds banks too. JPMorgan’s American investment trust also offers a mix of tech, banks and healthcare. 

Teodor Dilov of Interactive Investors recommends the Brown Advisory US Sustainable Growth Fund for those who want to back the green energy drive. 

For simplicity, you could opt for an S&P tracker fund. But Jason Hollands of Tilney Bestinvest warns: ‘Tech accounts for 28 per cent of this index. Facebook, Alphabet and Twitter – which are considered to be communication services companies – make up another 11 per cent.’ 

In other words, trackers are skewed towards tech. 

Thousands are already backing the American dream through the top-selling Baillie Gifford funds and trusts which excelled in 2020, thanks to Amazon whose shares have soared by 66 per cent over the past 12 months and Tesla, which is up by a phenomenal 788 per cent. 

Some investors may opt to take profits, but I suspect that Baillie Gifford will endeavour to ensure it maintains its reputation for results. Observing this and the response of the markets to the new era of American politics will be for me one of the unmissable spectacles of 2021.

This post first appeared on Dailymail.co.uk