Inauguration day starts the clock on the first 100 days of a new administration, a symbolic benchmark period to measure early success. During the first 100 days, we anticipate another fiscal package, a pivot on foreign policy, trade and regulation, and a preview of future recovery spending.

Immediately, a flurry of executive orders will promote Biden’s domestic and economic priorities, such as rejoining the Paris climate accord and extending moratoriums on evictions and student loan payments. A sweeping proposal on immigration reform will also signal a commitment to addressing those complexities, although this could be difficult for Congress to agree upon. While these items will build policy momentum, few will have as direct and swift an economic impact as his proposed 1.9 trillion USD fiscal package.

Biden’s wish list for the fiscal stimulus package includes aid for state and local governments, larger and extended unemployment benefits, further household stimulus checks, and funding for the vaccine rollout and testing. Although the eventual package will likely carry a smaller price tag, more fiscal stimulus should lead to a faster and stronger recovery in both growth and earnings. That should benefit cyclical stocks, like financials, industrials and materials, plus small caps. However, improving growth and employment could push the Fed to taper asset purchases sooner, resulting in further yield curve steepening. While this should also benefit cyclical sectors in equities, it would hurt long-duration fixed income.

Beyond this, Biden will also set the tone for foreign policy, trade and regulation. The administration will likely have a tough, but more predictable approach to China, and cooperate with foreign allies. This could lead to further dollar weakening, which should benefit international equities. From a regulatory standpoint, antitrust legislation on technology is a bipartisan issue, but probably a slow-moving one, representing a long-term headwind for technology stocks. Still, growth stocks will be important to portfolios once lower trend-like growth resumes post-pandemic. However, within energy, re-regulation could be swifter. Although this is a headwind for energy returns, structural challenges of excessive oil supply and lower oil prices are already a constraint.

After the first 100 days, the administration is likely to propose a recovery package geared towards infrastructure spending and clean energy, perhaps with modest tax reform included. However, a slim Democratic majority, a large share of moderate Democrats, and political polarization, highlighted in the chart below, may limit the scope of change. With the politics of 2020 behind us, policy will come to the fore in 2021, charting the course for the economic recovery and future growth. 

Liberal-conservative partisan polarization by chamber

Distance between party means

Lewis, Jeffrey B., Keith Poole, Howard Rosenthal, Adam Boche, Aaron Rudkin, and Luke Sonnet (2021).
Voteview: Congressional Roll-Call Votes Database. https://voteview.com/

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