President Joe Biden has been inaugurated, but it seems the divide is still growing between Americans regarding the country’s economic outlook. Some look optimistically to a future led by the new administration, while others are more skeptical.

For investors, it’s really a Shakespearean conundrum—to worry or not to worry?

The answer depends on how you size things up. On the bright side, more economic stimulus is on the way, and the COVID-19 vaccine rollout promises to smooth out. But we’re likely in for at least several more lackluster economic months thanks to the pandemic.

Five matters to consider as 2021 unfolds:

  • Public debt as a percentage of GDP – The fiscal response to the pandemic recession will leave the United States with the largest pile of public debt (as a percentage of GDP) since World War II. With more fiscal stimulus probably on the way, estimated in the $2.5 trillion range, can the economy handle the additional debt? AMG will watch to see if foreign investors continue buying U.S. debt and whether the Federal Reserve is willing to let longer-term interest rates rise.
  • Dramatic change in tax policies – Democrats have control of the House, Senate and White House, meaning tax-policy changes are probable. Biden’s plan to raise taxes on the top 1% of income earners likely would have less impact on the economy than would a proposal to eliminate all the 2017 Tax Cuts and Jobs Act. AMG will monitor how tax-policy changes impact corporate profits and middle-income consumers.
  • Executive orders and new regulations – Much of the economic growth and drop in unemployment rates during the Trump administration occurred thanks to deregulation. Reversals of Trump’s regulatory actions should not have an impact in the short-term, but AMG will be assessing how, if at all, specific industries would be affected.
  • COVID-19 vaccination programs – Accelerating the lagging distribution of vaccines will be an economic linchpin for the United States and countries around the world. Remember that some 29% of S&P 500 revenues and 40% of profits come from overseas. AMG will be watching how quickly countries achieve herd immunity against COVID-19.
  • U.S. service industry – Recovery of this economic sector is critical but complicated. A lot depends on further pandemic lockdowns and how quickly vaccines are distributed. AMG’s latest forecasts for U.S. and global economic recovery vary depending on those factors. If the first weeks of January are any indication, vaccinating the majority of Americans and returning to some semblance of normal economic life by early summer looks challenging.

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