U.S. election could have a big impact on these TSX sectors
Investors are increasingly anticipating a Democratic sweep in next week’s U.S. elections, with sectors expected to benefit from a Joe Biden presidency advancing.
Green-energy and some healthcare and housing stocks have climbed in the past couple of weeks as Biden has maintained his lead in the polls strengthened last month, increasing the likelihood of a flood of government spending if Democrats win across the board.
With a Democratic sweep, investors may first zoom in on “prospects for stimulus in the first half of 2021 rather than the threat of tax increases that will surely follow,” Compass Point analyst Isaac Boltansky said by email. “I don’t think anyone wants to fight uphill against potentially trillions of dollars being injected into the economy, but the market will have to reckon with tax and regulatory changes.”
At the moment, Biden leads Trump by about 8 percentage points in national polls, according to RealClearPolitics. Analysts though are sounding caution notes about the assumption of a guaranteed Biden victory, and the track record of Wall Street firms’ markets predictions has been sketchy at best.
Still, even a win for Biden with a divided Congress could also spur optimism, analysts said. A GOP-led Senate would probably stymie many key Democratic ideas, such as potential tax hikes -- which are particularly worrying for stock investors.
“Spending may be less, but tax rates won’t increase either” if Congress remains split, Integrity Asset Management portfolio manager Joe Gilbert said via email. A blue wave would mean “higher taxes will probably be a 2022 story” he said.
Stimulus efforts and infrastructure spending may move forward if Republicans hold the Senate, albeit at potentially lower levels than if Democrats take over. Signs of pending expenditures would probably lift stocks across the board, particular banks and construction-material makers. To be sure, Trump’s 2016 talk of huge infrastructure spending didn’t yet materialize.
Here’s what strategists are watching ahead of the vote (all percentages mentioned are year-to-date performances):
While Biden would seek to ease relations and strained trade ties with allies, he’s likely to keep pushing on China. Domestic manufacturers stand to benefit from a made-in-America approach, while tech companies that have had their supply chains and sales prospects disrupted would continue to be challenged.
Biden may move to oust Chinese companies from U.S. stock exchanges if they don’t submit to proper audit procedures, as would a Trump administration, Cowen analyst Jaret Seiberg said in a note. Biden, however, may tie worker and human rights issues to listing requirements, complicating a resolution, he said.
With a Republican Senate, Biden could still proceed with executive actions, as Trump has with the House under Democratic control. Priorities might include bank and environmental regulations, with the oil industry coming under scrutiny.
Key stocks: JPMorgan Chase & Co. (-29 per cent), Goldman Sachs Group Inc. (-15 per cent), Exxon Mobil Corp. (-53 per cent), Chevron Corp. (-42 per cent), Alibaba Group Holding Ltd. (+50 per cent), JD.com Inc. (+136 per cent)
Green Tech Stocks
Solar panel makers, electric vehicle makers and other clean-energy companies have gained on polling data and prospects for a win by Biden, who has a US$2 trillion plan to achieve a carbon-free power sector by 2035. The iShares Global Clean Energy exchange-traded fund, up 67 per cent this year, has added 20 per cent in little over a month.
JPMorgan Chase & Co. has a “Biden basket” of stocks, including alternative energy and “green tech” companies such as First Solar Inc. and Tesla Inc., along with others that would benefit from infrastructure spending, minimum-wage and health-care reform. It has outperformed a corresponding Trump basket by 63 per cent this year as of Oct. 23, according to strategist Dubravko Lakos-Bujas.
Key stocks: Tesla (+408 per cent), First Solar (+47 per cent), Vulcan Materials (-1.3 per cent), Anthem (-1 per cent), Amazon (+78 per cent), Walmart (+20 per cent)
Cannabis stocks may also see a bounce under Biden. Marijuana is probably headed toward federal decriminalization under either candidate, “but I think it happens much faster under Biden,” Stefanie Miller, managing director at FiscalNote Markets, said in an email.
Key stocks: Curaleaf Holdings Inc. (+45 per cent), Green Thumb Industries Inc. (+62 per cent), Cresco Labs Inc. (+6.5 per cent)
A Democratic sweep would be “favorable for housing,” Ivy Zelman, chief executive officer of real estate research firm Zelman & Associates said in September, partly because Fannie Mae and Freddie Mac probably wouldn’t exit conservatorship. Those companies going private would probably result in higher mortgage costs with Republicans in power, she said.
A fresh slate of housing officials could also move to reduce the higher finance costs Black households pay compared with others.
Key stocks: D.R. Horton Inc. (+31 per cent), Lennar Corp. (+30 per cent) PulteGroup Inc. (+6.5 per cent)
Auto lenders would probably face “increased scrutiny and more regulation,” under Biden, according to Cowen’s Seiberg, while big banks’ ability to acquire other firms may be restricted. Big bank capital requirements may also tighten, while limits on dividends and a ban on buybacks may be extended, he said.
A Biden team would be “more dubious” toward cryptocurrencies and may make fresh demands for consumer protection and anti-money laundering compliance, Seiberg said. That could boost the chances for a Federal Reserve digital dollar, and may be negative for Bitcoin and Facebook Inc.’s Libra.
Key stocks: Ally Financial Inc. (-11 per cent), Facebook (+38 per cent)