What is the impact of the new US financial policies and regulatory trends on the US stock market?
“The US is expected to have many new financial policies and introduce a large number of new regulatory regulations this year. What is the impact of these policies on the US stock market? The author hopes to use this article to give you some analysis and predictions.”
I. Regulatory trends
New President Joe Biden and Trump's succession team leader is Delaware Senator Kaufman, a Democrat who places great emphasis on regulation. The proposed Treasury Secretary, Ms. Yellen, is also an Obama-era veteran who promoted the last round of regulation of Wall Street. The proposed chairman of the Securities Regulatory Commission, Gensler, is also a veteran who emphasizes the supervision of the securities industry. It can be said that the Biden team's tax increases and regulations on US companies should be promoted simultaneously. The expansion of regulation can be predicted from the following aspects: financial regulation, technology regulation, and environmental supervision.
From a financial perspective, the regulatory themes of Wall Street during Trump's term were biased towards deregulation, including mergers and acquisitions, proprietary transactions, cryptocurrencies, etc. After the Democratic Party comes to power, it should reverse this trend and strengthen supervision instead. Ms. Yellen has always advocated regulation. On her last day as Chairman of the Federal Reserve, she also signed a document to force Wells Fargo to restructure its board of directors. She also published an open letter two years ago along with other senior finance officials from the opposition Democratic Party calling for strengthened supervision of large financial institutions. Therefore, after the Democratic Party came to power, it is expected that large financial institutions will be required to split their business, systemically important insurance companies will be re-included in supervision, and that the cryptocurrency industry will be required to strengthen compliance.
Looking at technology companies, in addition to raising taxes on technology companies, Biden's team will also file antitrust claims. Currently, there are 5 social platforms with more than 1 billion users around the world, 4 of which are owned by Facebook. At least two of these four families should be asked to split up. However, Amazon's monopoly on cloud computing, e-commerce, logistics, etc. will eventually be resolved through a spin-off listing. Whether social media should be regulated according to the media is also an issue that the Biden team needs to address urgently. In addition to pressure from within the US, there is also pressure from the European Union to regulate these technology companies. It can be said that the time has come when they have to be introduced.
Regulations on environmental protection were extremely relaxed in the Trump era, and will inevitably be reversed in the Biden era. For example, restrictions on carbon emissions, and the re-tightening of oil and gas extraction in the Arctic region, the Pacific coast, the Dakota region, etc., pollution enforcement against enterprises will all be strengthened.
II. Monetary Policy
Monetary policy is probably the only one in US financial policy that will not change much at the moment. First, due to the independence of the Federal Reserve, neither Biden's White House team nor Congress can directly change US monetary policy. Federal Reserve Chairman Powell's term of office is still two years away. It is difficult for structural changes in monetary policy to occur until his term ends. The other two vice presidents of the Federal Reserve Board, with the exception of one of the three members, are Republicans appointed by Trump; the only Democrat is Director Brainard. She used to be a popular candidate for Biden's Treasury Secretary. It was later said that Biden was worried that after appointing Brainard, the Federal Reserve would not have a single senior Democrat official. Meanwhile, Brainard continues to work for the Federal Reserve and will most likely be appointed Chairman of the Federal Reserve in early 2023.
Of course, as the former chairman of the Federal Reserve, Ms. Yellen has worked for the Federal Reserve for more than 30 years, so she should be able to influence monetary policy while managing the Treasury Department. After the COVID-19 pandemic, modern monetary theory (MMT) became popular, and the boundary between fiscal policy and monetary policy was blurred. Therefore, the Federal Reserve continues its zero interest rate and quantitative easing policy, and the continuous release of liquidity should be the center of current policy. However, if the inflation rate rises in the second half of the year, there is also a considerable probability that the Federal Reserve will tighten monetary policy at the end of the year.
3. Impact on the US stock sector
In summary, the Biden finance team's fiscal policy, monetary policy, and regulatory ideas are all in line with traditional Democratic Party ideas. Corresponsibly, among the 11 major sectors of US stocks, the most important beneficiary industries should be healthcare, consumption, new energy, infrastructure, etc. In terms of enterprise size, small and medium-sized enterprises may receive more subsidies and other support, while large multinational companies will face more regulatory and tax pressure.
Finally, I need to add that the actual power that the Biden team currently faces is far lower than the situation when Trump joined the White House in 2017. When Trump entered the White House, the Republican Party had a majority in both houses of the 115th US Congress at the time. In the Senate, the Republican Party voted 54 to 44 against the Democratic Party (2 additional independent senators). In the House of Representatives, the Republicans voted 246 to 187 against the Democrats. As a result, Trump's tax cuts, deregulation, etc. all passed smoothly. The Democratic Party versus the Republican Party in the 117th US Senate, which was sworn in at the same time as Biden this year, had 48 votes to 50 (2 additional independent people and Democratic senators joined the Senate). The House of Representatives currently has 221 votes for the Democratic Party and 211 votes for the Republican Party. At least 4 Democratic congressmen will resign to join Biden's cabinet. In fact, the congressional majority required for Biden to pass the bill is extremely weak. Generally speaking, parties in power in the midterm elections will lose their seats in the National Assembly, so the Democratic Party faces challenges in the 2022 midterm elections. Therefore, whether it is the Biden team's fiscal policy, monetary policy, increased supervision, etc., they will encounter far greater challenges in the process of advancing than their predecessor. Finally, Trump is the president who has appointed the most federal judges in the history of the United States, including 3 Supreme Court judges, 54 federal appeals court judges, and 174 federal district court judges. These judges all serve for life, and their views are biased towards conservatism. If the Democratic Party's executive and legislative decisions are brought to justice, the possibility of being challenged by conservative judges is also huge. Therefore, the author believes that it is very unlikely that there will be a substantial change in the direction of US policy in the next few years.
