If you thought that Biden would govern as a centrist, you were wrong. In the wake of the passage of a $1.9-trillion stimulus package, President Biden is planning to attack the enduring challenge of inequality by expanding government spending with a second ambitious $3-trillion economic renewal plan and a re-vamp of the tax code. It is intended to be a repudiation of the Reagan Revolution and the neoliberal consensus that has dominated economic thinking for decades.
What does this mean for investors?
While we don’t know the full details of Biden’s American Rescue Plan, its short-term effects are likely to be reflationary, which is equity bullish, while its long-term effects have a possibility of being inflationary, which is equity unfriendly. Much depends on the inflation outlook, which is uncertain at this time. This is not the time to worry just yet. We believe equity investors should adopt a positioning attitude of “party now, and (maybe) pay later”.