April 12, 2021

At the midterm , the voters will have to decide whether the recent economic success can be replicated and sustained by the spending and tax increase policies enacted by the Biden-Harris administration. If the voters conclude that most of the economic expansion was a one-time effect associated with the recovery and that the economic outlook is not as bullish as the administration and their forecasts paint it , they will likely conclude that a divided government will be the better choice going forward. Under that scenario we believe that like the Obama-Biden administration, the Biden-Harris administration will not veer away from its progressive policies. Unable to implement its agenda legislatively, it will increase its reliance on executive orders. A more bearish scenario is one where the voters approve the progressive agenda. The increase in tax rates and regulations will accelerate. The higher tax rates and regulations will result in a slower economic performance, a slower stock market appreciation favoring the smaller capitalization stocks. Looking ahead, the Obama-Biden years are a good benchmark for the Biden-Harris years under the assumption of a divided government. Under the scenario that the democrats retain control of the House and Senate , our view is that the Obama-Biden performance is a best an aspirational target and such an outcome would put the economy on track to a “new-new normal”.

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