Key Points

  • Joe Biden takes the Presidential oath of office this week in the U.S., marking the end of a long U.S. political contest; a year of political challenges is just getting started overseas.

  • The biggest potential for market impact is in Europe where political contests start with today’s vote in Italy, the Netherland’s election in March, Germany’s election in September, and France’s presidential election in April 2022.

  • Markets have been pricing in little geopolitical risk in 2021, in part tied to Biden’s promise that he would return to the nuclear deal with Iran. Yet this seems increasingly unlikely with the potential for conflict potentially weighing on stocks.

Joe Biden takes the Presidential oath of office this week in the U.S., marking the end of a long U.S. political contest; a year of political challenges is just getting started overseas. Investors may find it useful to have a guide to what the 2021 elections may mean for the stock market.

The biggest potential for market impacts this year is in Europe where political contests start with today’s vote in Italy, the Netherland’s election in March, Germany’s election in September. The good news is that there appears to be no evidence of the crises that marked the last cycle which threatened to tear the European Union apart. European political risk has significantly softened for several reasons: a disorderly hard Brexit has been avoided, EU-U.S. relations may be subject to less uncertainty under the Biden administration, and the completion of an EU-China investment agreement at the end of 2020. The most important development was last summer’s agreement on the EU’s COVID-19 recovery fund, which marked a big step forward in tying member countries into a long-term program of shared borrowing and setting an important precedent for a fiscal union. The upcoming elections in the Netherlands, Germany, Italy and France—countries who have activity shaped recent EU policy—will be important in deciding the EU’s future direction.