The double whammy of Joe Biden’s victory and Pfizer and BioNTech’s news that their COVID-19 vaccine is more than 90 per cent effective has sent the major U.S. indices back to all-time highs.

Here’s a first blush take on what it all may mean for the economy and financial markets from John Johnston, Executive Vice-President and Chief Strategist at Davis Rea Investment Counsel.

U.S. – Key Points:

  • Biden Presidency, but Senate control still up in air. Depends importantly on run-off election in Georgia in January. No matter what the outcome, Senate will be close, and act as a big constraint on Biden Administration.


  • Still a risk that a GOP Senate would try to undermine Biden. Big initiatives, including a big stimulus bill if needed, will be tough or impossible to pass.


  • Biden’s initial actions will be via executive order – trade, climate and regulatory – undoing many of Trump’s actions on these fronts. This should be neutral at worst for economy and asset prices.


  • Good news on vaccine, but widespread vaccinations could easily be a year away in best case scenario.


  • Good news on economy in last week’s key reports, which I have found to be the most useful to track.


Quick Discussion on Economy:


  • Chart 1 below updates the stylized COVID cycle, with October data on hours worked and consumer sentiment, and September small business sentiment.


  • Economy is recovering but is transitioning from the rapid growth of reopening phase to a slower pace of expansion in recuperation phase, which is likely to be uneven. This is all in line with outlook presented in quarterly.


  • Good ISM manufacturing and services PMI’s for U.S. released last week for October. Same with October global PMIs.


  • The labour market report was also solid. Good employment and hours worked figures with net upward revisions in August and September. Total hours worked increased as evident in Chart 1. Wages remain soft.


  • I am closely tracking the composition of unemployment. Overall unemployment falling quickly as workers on temporary layoff are recalled.


  • In most recessions there is also a shift of workers on temporary layoff into those who are unemployed and won’t be recalled (these are termed “permanently” unemployed).


  • This shift is occurring now, but as Chart 2 shows, the increase in permanent unemployment is in line with past recessions, and well short of the terrible 2007-09 recession.


  • Also, what is not clear in the chart is that the rate of increase in this unemployment measure is tentatively slowing, which is very good news.


Canada- Key Points:

  • U.S. election outcome good for Canada. Biden to be tough on trade but more stable than Trump. With USMCA in place, trade frictions should settle.


  • Also, Biden is more likely to work with international partners/traditional allies and international institutions (WTO, WHO).


  • Canadian economy also recovering, but like the U.S. it is transitioning from reopening phase to recuperation phase with slower economic growth.


  • Good global and U.S. economic signals last week generally supportive for commodity prices and C$.


  • Recent global, U.S. and Canadian developments alter expectations on rates.


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