US equities and the Biden administration

Joe Biden has certainly had an interesting start to his first year in office after being sworn in as the 46th President of the United States on January 20th last year. Here, we look at President Biden’s 12 months at the helm and assess the US under his leadership.

Strong economic growth

Despite the tragic loss of life and immense challenges brought on by the pandemic, the US economy is making a remarkable recovery, according to the International Monetary Fund (IMF). The IMF currently predicts real GDP growth of 5.2% during 2022, with consumer prices being projected to increase 3.5%*.

“The Biden administration’s proposed spending plans will add momentum, raising GDP by more than 5% from 2022 to 2024, and will create a lasting impact by increasing productivity and labour force participation,” it stated in a country focus*. A forecast by AXA Framlington also suggested GDP growth should continue at a robust pace. “We forecast growth of 5.5% in 2021, 3.5% in 2022, and 2.7% in 2023,” it stated**.

Stock market performance

Analysis by international news agency Bloomberg in December 2021 suggested US financial markets were outperforming the world by the biggest margin in the 21st century. “America’s economy improved more in Joe Biden’s first 12 months than any president during the past 50 years, notwithstanding the contrary media narrative contributing to dour public opinion,” it stated.

The report insisted “exceptional returns from dollar-denominated assets”, especially the S&P 500 Index in both absolute terms and relative to its global counterparts, could be attributed to record-low debt ratios enabling companies to reap the biggest profit margins since 1950.

The major US stock markets have also performed well since January 2021 – despite the impact of Covid-19 and ongoing global supply issues. The S&P 500 Index has risen 23% over the past year from 3,799.61 points to 4,670.29, according to data to the market close on January 10th, 2022.

It even reached a record high of 4,748.61 at the back end of December as strong retail sales emphasised the overall strength of the economy. The Dow Jones Industrial Average, meanwhile, has risen 16% from 31,008.69 points to 36,068.87 points over the same period.

Approval ratings

So, how is President Biden viewed by the public? Well, he currently has a 43% job approval rating, according to Gallup that carried out a poll between December 1 and December 16, 2021. To put this into perspective, Donald Trump had a lower rating of 36% in the December of his first year in the job, while Barack Obama had 50% support and George W. Bush an impressive 86%. The average is 53%.

As David Coombs, manager of Rathbone Strategic Growth Portfolio, points out: “President Biden’s first year has ended with his political capital at a low. It’s proving extremely difficult to achieve Congressional agreement on emissions already, an election promise that is likely to be almost impossible following the mid-terms.”

Outlook for 2022

So, what does the future hold? According to Bob Schwartz, senior economist at Oxford Economics, this year is beginning just as 2021 ended for the US. “Health fears are rising, unemployment is plummeting, interest rates are increasing and the Fed is tightening,” he said. “The financial markets are getting jittery.”

He also acknowledged 2022 was the year of the tiger and pointed out this was an animal known for its assertive, unpredictable and energetic qualities. “It may yet turn out that the Fed, in cohorts with health professionals, will tame the tiger, allowing a more tranquil economic environment to unfold over the course of the year, but developments over the opening week suggest that a more eventful than languid outcome is in store for the period immediately ahead,” he added.

Katie Deal, investment analyst at T.Rowe Price, expects the Biden administration to pursue its agenda primarily through the execution of prior legislative changes and regulatory actions.
“Likely areas of focus include environmental regulation, expanding access to health insurance, drug pricing negotiation, and the investigation of anticompetitive practices across numerous sectors,” she said. “We would also expect the administration to focus on China, especially regarding critical technologies.”

US funds to consider

AXA Framlington’s American Growth fund invests at least 80% of its assets in large and medium-sized companies domiciled or operating within the US, Canada and Mexico.
The firms, which are expected to provide above-average returns, are chosen based on an analysis of financial status, management quality, expected profitability, and growth prospects.

The fund’s most significant positions currently include some of the world’s largest companies, such as Microsoft, which makes up 6.32% of the portfolio ***. It’s followed by Apple, Amazon, Alphabet and NVIDIA, while the rest of the top 10 includes familiar names such as Costco and American Express.

Then there is the Schroder US Mid Cap fund that’s run out of New York by Bob Kaynor. It has a focus on small and medium-sized companies with a diversified set of return drivers.
The team has three sources of stock returns: Less cyclically sensitive stocks that act as ballast; mispriced growth stocks that are not understood; and recovery situations.

The 10 largest positions range from the 1.4% in Balchem Corp, a chemical manufacturing company, to the 2.4% in Assurant Inc, a global provider of risk management products and services***.

America is also home to many of the world’s most innovative, entrepreneurial and fastest-growing small companies, according to the manager of Artemis US Smaller Companies Fund. “Academic studies suggest that, over the long term, smaller companies tend to outperform their larger peers,” he stated. “America is also a particularly supportive environment for small companies.”

The fund, which is run by Cormac Weldon, usually holds between 50 and 70 stocks with market values being mostly below US$10bn. Its most significant positions currently include Saia, the freight shipping & logistics provider; and LPL Financial, which provides investment and business solutions for financial advisors***.

*Source: IMF, country focus.
**Source: AXA IM UK Outlook 2022
***Source: fund factsheet, 30 November 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.