Markets are increasingly turning their attention to the campaign trail in the United States with the November election fast approaching. The key question on everyone’s mind is how the outcome would affect certain sectors and its implications for portfolios.
Over all, our analysis of campaign promises from the Republican Party’s Donald Trump and the Democratic Party’s Kamala Harris (and historical precedents) point to legacy auto manufacturers, metals and mining, and energy equipment doing well in case of a Trump win while being incrementally negative for health insurers and retailers. On the other hand, we expect Ms. Harris’s policies to be positive for different segments of consumer discretionary (home builders, home furnishings, restaurants, retail), building products, consumer finance, clean-energy equipment companies, independent power and renewables while being negative for consumer staples.
Of course, the typical caveats apply of whether or not there is a split in Congress or complete control by one party, but for the sake of this analysis we assume the latter.
Here’s a breakdown.
Trump presidency: Positive for traditional industries and equities in general
One of Mr. Trump’s biggest promises in the current campaign is slashing the corporate tax rate to 15 per cent from 21 per cent. This, if it gets through Congress (which looks unlikely even in the event of a Republican sweep), would be very positive for U.S. equities in general, irrespective of sector or market cap.
Another one of the big promises from Mr. Trump’s camp is to go stricter on tariffs, which is going to make imported goods more expensive for retailers, in turn squeezing their margins. While a Trump win will be incrementally negative for all retailers, a Harris win would just be negative for staples retailers (because of her proposed ban on price gouging) but neutral for other categories of retailers.
Calling for a weaker U.S. dollar to make U.S. exports competitive was one of the hallmarks of Mr. Trump’s 2017-2021 presidency, and it materialized despite increased tariffs, with the dollar index declining 12 per cent in Mr. Trump’s presidential term. Mr. Trump and his vice-presidential nominee J.D. Vance have echoed similar thoughts during their campaign this time around. This is positive for metals in general, including both industrial and precious metals. In terms of equities, we recommend keeping metals and mining at an overweight position in portfolios in a scenario where Mr. Trump wins. (The sector outperformed by eight percentage points in Mr. Trump’s tenure over President Joe Biden term since 2021.).
The overall impact of a weaker U.S. dollar and Mr. Trump’s call for “drill baby, drill” will have a mixed impact on oil. While a weaker U.S. dollar is good for oil prices, an increase in supply − not so much. On top of that, oil prices are driven more by global dynamics such as global growth, OPEC+ supply and the geopolitical outlook. Having said that, we see stock-specific opportunities in energy equipment and services with companies more focused on oil and gas exploration and drilling.
Mr. Trump’s “promise” to replace the 2010 Affordable Care Act (ACA, also known as Obamacare) is incrementally negative for insurance companies as they benefited from coverage expansion and subsidies from the government, prompting an underweight recommendation for the insurance industry (particularly for the life and health insurance sub-industry) in case Mr. Trump wins and manages to replace the ACA. We would like to highlight, though, that his previous attempt to replace Obamacare in 2017 wasn’t successful.
Over all, a lack of a drug price cap during Mr. Trump’s time in office is modestly positive for health care companies in general and more so for pharmaceuticals. Health care, over all, outperformed by roughly 30 percentage points in Mr. Trump’s time compared with the current government so far.
Mr. Trump has also come down heavily on electric vehicles by promising to roll back new-car pollution rules and tax credits for EVs. Given that traditional car manufacturers are struggling with the EV rollout, it will over all be more positive for the automobile manufacturers dominated by traditional players.
Harris presidency: A win for consumers, new energy segments and industries associated with housing
Ms. Harris’s promise of US$25,000 in downpayment assistance for first-time home buyers would quickly start to be reflected in house prices, with a limited impact over the longer run. However, we see some incrementally positive tailwinds in the near term for home builders. They will also see support from a Biden administration proposal for a total of US$15,000 in a variety of tax credits (US$10,000 tax credit for first-time buyers and US$5,000 in mortgage tax credit). Additionally, the Harris campaign spoke about building three million additional housing units over four years, which is positive for home improvement, building products and home furnishings apart from the home builders.
Ms. Harris also promised a big tax overhaul, but in a direction far from Mr. Trump’s. She promised to expand the Child Tax Credit to US$3,600 from US$2,000 while also expanding the Earned Income Tax Credit for low-income families, free universal preschool and cancellation of medical debt for up to three million Americans. These initiatives, though new, build up further on the pandemic-era income support and student loan waiver, which proved to be positive for consumer discretionary industries (such as restaurants, hotels, resorts, etc.) as well as financials (particularly consumer finance), which benefited from lower delinquency and increased spending.
Most of the initiatives for support to lower-income consumers are expected to be financed by her proposal to increase the corporate tax rate to 28 per cent from 21 per cent and taxing unrealized capital gains for taxpayers with wealth greater than US$100-million. These developments are fairly negative for equities as an asset class in general.
Another one of Ms. Harris’s promises is to impose a federal ban on price gouging of groceries, which is negative for consumer staples in general and more so for the consumer staples merchandise retail industry.
Continuity of the price cap on drugs means incremental headwinds for the pharmaceuticals industry and health care in general.
We also expect policy continuity on the transition toward clean energy and infrastructure creation as initiated under the Biden administration’s 2022 Inflation Reduction Act and the 2021 Infrastructure Investment and Jobs Act. This is positive for energy equipment and services companies focused on clean-energy equipment, electric vehicle companies and the independent power and renewable industry within utilities.
A word on bipartisan picks
There are a few segments that stand to benefit, irrespective of which party comes to power. These are: energy equipment and services (the index comprises companies making equipment for oil drilling as well as clean energy, a win-win at the index level), metals and mining (a weaker U.S. dollar, which is a base case for both parties, is good for metals prices) and various segments of consumer discretionary (while Ms. Harris’s consumer-friendly measures are positive as they place more money in the hands of consumers, Mr. Trump’s equity-friendly policies are positive for the sector as they increase consumer spending on account of the “wealth effect”).
Bottom line
Though equity returns, in general, are influenced by a number of factors irrespective of who becomes president (growth/valuation mix and overall macroeconomic backdrop), there are winners and losers from various policy support levers and trends in government spending. Investors should be aware of potential opportunities depending on who wins in November and how it can generate alpha in the portfolio.
Bhawana Chhabra is a senior market strategist at Rosenberg Research
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