2021: back to normal?

US elections and new vaccines against Covid-19

Biden: back to a normal president?

On Saturday 7 November, following a cliffhanger worthy of the best, it became clear that Democrat Joe Biden will be instated as the next President of the United States. Democrat voters’ massive shift to postal votes and their late tallying in swing states such as Pennsylvania have delayed the release of some of the results. Indeed, it won’t be until mid-December and the electoral college vote that Joe Biden will be officially elected. Meanwhile, President Trump has yet to concede defeat, but Republican allegations of electoral fraud appear unfounded and as recounts have never before reversed majorities of several thousands of votes, Joe Biden can be expected to take the oath of office on 20 January.

The fact remains that the blue wave of Democrat support predicted by pollsters failed to materialise. While the House of Representatives retains its blue majority, the Democrats have lost some seats. In the Senate, the Republicans have secured 50 seats and the Democrats 48, one more than in the previous legislature. Two seats, both for Georgia’s senators, currently remain outstanding and will be designated after run-off elections to be held in early January. Georgia’s electoral system differs from other states and successful candidates must win an absolute majority. President-elect Biden is the first Democrat to win Georgia since Bill Clinton back in 1992 and the question now is whether the Democrats can win both Senate seats. If they succeed, then along with Vice President-elect Kamala Harris’ additional vote, the Democrats could secure a razor-thin majority in the Senate. This is currently looking unlikely and President-elect Biden will probably have to work with a Republican Senate.

President Trump may have lost the White House, but the election has not been a total rejection of him or his presidency. With a record voter turnout, President Trump increased his support compared with the 2016 election. Despite all of the adjustments made by polling institutes to their models, they still underestimated the scale of his support. Conditions are ripe for his advent on the political stage and Trumpism can be expected to continue to exert a strong influence on Republicans. Apart from just a very few exceptions, Republicans have not yet explicitly recognised President-elect Biden’s victory. This reluctance is doubtless due to a fear of alienating those who put their support for Trump ahead of that for the Republican Party. Can we expect President Trump to follow the example of former outgoing US Presidents and disappear quietly from the political limelight? Will he continue to influence the Republican Party or become embroiled in legal battles? Whatever the case, President-elect Biden will be leading a country that remains very divided. Throughout his campaign and during his initial post-election addresses, this self-claimed centrist has expressed his desire to reduce tensions and work with ‘everybody’. Will his long experience in Washington and good relations with Republican Senate House leader Mitch McConnell enable him to break away from years of political divide?

The first step on this road is to decide on a new economic recovery plan. Democrats have been notable campaigners for an extraordinarily large stimulus plan of at least $2 trillion, which would be financed in particular by higher taxes on companies and the wealthiest individuals, but without Democrats controlling the Senate, any vote to raise wealth taxation would fail. This is good news for the US equity market, since the Democrat plans would undoubtedly lead to a 10% fall in profits for companies in the S&P 500.

Since the end of July, a number of support measures have expired, such as the $600 per week increase in unemployment benefit. During the run-up to the election, discord persisted between Democrats and Republicans over renewing these support measures. While Republican Senators recognise the need for a stimulus package, they take issue with its scale, meaning that negotiations are set to continue. If the Democrats improve their score in the Senate, they may be able to convince one or two Republican Senators to support their proposal. Much of President-elect Biden’s campaign plan was based on the March 2020 CARES Act, which included direct payments to households, improved unemployment benefits for the jobless, and support for small businesses. These measures will probably only be implemented once the President-elect takes office. Household income data from September indicate that household income transfer amounts largely exceed lost earnings, reducing the urgency for further action. As for the scale of any new package and based on indications from the pre-election negotiations, an agreement in the region of $1–1.5 trillion looks possible, which represents 4.5–7% of US GDP. Looking beyond this immediate crisis response, additional plans to significantly boost spending on education and infrastructure will depend on the balance of power in the Senate.

Lastly, President-elect Biden’s governing style will be a clean break from that of President Trump and should reduce market volatility. While it is far from certain that the direction of trade policy will change, particularly with respect to China, the era of tariff hike tweets is probably behind us.

Promising vaccines: back to a normal life?

Amid Europe’s fresh batch of Covid-19 restrictions, which seem to be working, and escalating new cases in the United States, Pfizer has announced very positive phase-three results for its vaccine. This is an important first step towards ending the current situation. The markets welcomed the Pfizer announcement and moved in line with an improving growth backdrop scenario: long-term interest rates rose and investors rotated from growth stocks towards those exposed to the economic cycle.

It is, of course, very early days, but the news surrounding an effective vaccine is clearly positive. Pfizer’s vaccine looks like it could reduce the rate of infection by 90 percent, when first-generation vaccines are typically 60–70% effective. The Pfizer vaccine uses messenger RNA technology and as Moderna and other laboratories are using the same, these initial positive results are fuelling hope for equally positive results from elsewhere. Some of the other vaccines being developed are based on more traditional techniques and in this category, AstraZeneca–Oxford University and Johnson & Johnson are expected to present their results by the end of the year.

Published results, however good, do not rhyme with commercial certification. For how long the vaccine protects is still uncertain and the logistics of vaccines such as Pfizer’s present challenges for which solutions need to be found in the months ahead. As several vaccines are likely to come to market in the first half of 2021, total vaccination capacity will not be limited by that of a single process.

Widespread vaccination campaigns could then lead to restrictions being lifted and result in a return to normal over the course of 2021. In the second half of the year, economies would benefit from both strong monetary and fiscal policy support and normalising activity levels.


Until vaccines enable a return to normal, the economy will continue to operate within a framework of varying restrictions and well below potential. Markets will be prone, from time to time, to the jitters. Against this backdrop, government support will remain key for preserving output capacity. Central bank action will be geared towards supporting government finances and the combination of monetary and fiscal policy should buoy financial markets. If confirmed, the prospect of an end to the crisis could drive the value of risky assets higher given persistently ultra-low interest rates.



The opinion expressed above is dated November 12, 2020 and is subject to change. Most recent data as of the date of publication.This document has no pre-contractual or contractual value. It is provided to its recipient for information purposes.It contains analyses or descriptions prepared by Lazard Frères Gestion SAS on the basis of general information and historical statistical data from public sources. The opinion expressed above is current as of the date of this document and is subject to change.These elements are provided for information purposes only and do not in any way constitute a guarantee of future performance. These analyses or descriptions may be subject to interpretation depending on the methods used. The analyses and/or descriptions contained in this document should not be construed as advice or recommendations from Lazard Frères Gestion SAS. This document does not constitute a recommendation to buy or sell, nor an invitation to invest in the instruments or securities contained herein.Any management method presented in this document does not constitute an exclusive approach and Lazard Frères Gestion SAS reserves the right to use any other method it deems appropriate. These presentations are the intellectual property of Lazard Frères Gestion SAS.
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