Biden win welcomed as positive for markets

The most expensive election in U.S. history resulted in the White House changing hands but not much else so far, which for markets at least could be a good thing, observers say.

An estimated $14 billion was spent on the 2020 election cycle, nearly half of which was for the presidential race, according to political spending research group Center for Responsive Politics. It did not do much for the political stalemates that will continue at least until January, when Georgia's two runoff Senate elections are held. For now, the Senate remains under Republican control, while Democrats control the House.

Even the presidential election won't be finalized until states certify election results and Congress counts the electoral votes, which is expected in January.

The lack of dramatic change in Congress means that President-elect Joe Biden may be able to fulfill some campaign promises — like rejoining theParis Agreement on climate change — unilaterally through executive orders and administrative actions. He could also undo recent changes like the Department of Labor's new policy on ESG investing. Loftier goals will require patience and compromise.

Everything will take a back seat to the pressing crisis of getting COVID-19 under control and repairing the economy. Congress also has a Dec. 11 deadline to fund the federal government for the rest of fiscal 2021 and avert a government shutdown. The expedited budget reconciliation process requiring just 50 Senate votes can only be used for fiscal decisions like taxes and federal spending, not controversial new ideas like an ambitious clean energy program or raising taxes.

Lack of a clear Democratic mandate could be the best possible outcome for markets, said Stephen Auth, Federated Hermes Inc. CIO of equities, in a client note. "We should still get a substantial fiscal package, but avoid growth-killing tax hikes planned by the Democrats in a sweep. This is supportive of our bullish market call for 2021," said Mr. Auth, whose firm manages $614.8 billion.

As political stalemates drag on, any possibility for bipartisanship could provide an opening for retirement legislation in the next session of Congress, said Julia Zuckerman, Segal Group vice president for compliance in Washington. That could make a path for legislation introduced in October by House Ways and Means Committee Chairman Richard Neal, D-Mass., and ranking member Kevin Brady, R-Texas. The ambitious Securing a Strong Retirement Act would require, among dozens of provisions, automatic enrollment of many defined contribution plan participants with the opportunity to opt out, and higher age for required minimum distributions, while allowing 403(b) plans to participate in multiple employer plans and invest in collective investment trusts.

During his campaign, Mr. Biden pledged that most workers will have access to an automatic 401(k) and said he would "equalize" the retirement provisions of the tax code that currently benefit affluent savers more.

"When there is some bipartisan consensus, lawmakers want to show they're doing something," Ms. Zuckerman said.

Another boost to the COVID-19 recovery should come from the next round of an economic relief package, which politicians on both sides of the aisle cannot ignore much longer. House leaders' opening position is the Heroes Act legislation they passed in May and October. Its retirement provisions offer funding relief for both multiemployer and single-employer retirement plans through extended amortization periods for funding shortfalls.

Multiemployer pension plans could see even more dramatic changes. Heroes Act sections aimed at shoring up the Pension Benefit Guaranty Corp.'s multiemployer program would give it authority and resources to partition more troubled multiemployer pension plans. It would also allow for new composite plans that combine defined benefit and defined contribution features, with more sharing of investment risk with plan participants.

To gain Republican approval in the Senate, those ideas could be melded with proposals floated by Health, Education, Labor and Pensions Committee Chairman Lamar Alexander of Tennessee and Senate Finance Committee Chairman Chuck Grassley of Iowa, who switches to the Judiciary Committee in the next Congress. They call for higher PBGC guarantees but also sizable premium increases. Multiemployer plan sponsors would face new rules for measuring liabilities and funding levels, among other measures.

A person involved in the discussions sees both parties eager to do something on multiemployer pension reform before a new administration takes over in 2021. "They'll want to get it off the plate," he said.

Economic recovery measures could also be good for climate action, particularly those dealing with infrastructure and jobs. Overlaying those with Mr. Biden's plan calling for 100% clean energy by 2035 and zero emissions by 2050, "the U.S. could emerge from the COVID-19 pandemic more resilient and competitive," said Mindy Lubber, president and CEO of sustainability organization Ceres in Boston. "Biden's 2009 experience in passing the largest clean energy stimulus package in history puts him in a good position to support the key sector that will usher in the clean energy economy of the future," she said.

Renewable energy got other boosts this election season, including Nevada's constitutional amendment to use 50% renewable energy by 2030 and another ballot measure in Columbus, Ohio, creating a system for buying 100% renewable energy for residential users. Six states — California, Hawaii, New Mexico, New York, Virginia and Washington — have already passed laws requiring a transition to carbon-free or renewable energy.

Climate change "is probably the greatest issue humanity has faced since the industrial revolution," said Bradford Cornell, who is teaching a course on energy, climate change and finance at UCLA's Anderson School of Management where he is emeritus professor of finance. More important than the Paris Agreement that Mr. Biden pledges to rejoin on his first day in office, "you need coordination and regulation and you've got to get the incentives and the prices right," Mr. Cornell said. "I think the Biden team is going to have a lot more interest in getting it right," he said.

Mr. Biden, who has already formed a transition COVID-19 advisory board, knows something about fiscal crises, said Jeffrey Schulze, an investment strategist with ClearBridge Investments LLC in New York. "Investors should take some solace in the notion that Biden will be in somewhat familiar waters as he begins his presidency. As vice president, Biden took office in the midst of the global financial crisis and helped steer the economy back into an expansion characterized by steady but slow economic growth.

This time, Biden will inherit an already-improving economy. In fact, we believe the U.S. economy has already exited the COVID-19 recession," Mr. Schulze said.

Other veterans of the 2008 financial crisis could be heading back to Washington, too. Gary Gensler, the former Goldman Sachs partner and Commodity Futures Trading Commission chairman during the Obama administration, is team leader of the Biden transition team for the financial regulatory agencies including the CFTC, Federal Reserve and the Securities and Exchange Commission. Other team members represent progressive organizations like the AFL-CIO and market watchdog group Better Markets.

Another Washington veteran considered a strong contender for Treasury secretary is Lael Brainard, a member of the Federal Reserve's board of governors. Ms. Brainard, who served in several posts under Obama and Clinton administrations, advocates for adding climate risk to financial stability calculations.

Filling the top post at the Department of Labor is expected to take more time, given the presence of union leaders and other strong voices on that transition team. For that and other key posts, Mr. Biden is expected to tone down partisan politics and consider candidates from both parties.