Biden or Trump? Let us identify the potential post-election sector winners or losers!

As we get closer to the U.S. presidential election which will occur on November 3rd, we wanted to assess the potential impact on different economic sectors in the event of the re-election of candidate Trump or the nomination of candidate Biden for president. Based on the elected candidate, changing or maintaining economic policy will have a significant effect on certain sectors of activity.

As we write these few lines, Biden seems to be holding the line. The polls show that he has an average lead of about 8 to 10 points over his competitor.

However, post-election, we are certainly expecting an increase of equity markets volatility. Regardless of the voting results, we believe that a sector reallocation will happen and influence the performance of different market segments.

Let us first consider the potential effect of an election of Biden. The Democrat candidate’s ambition is to focus on infrastructure projects as well as renewable and clean energy. His infrastructure development plan of $1.3 billion per year over 10 years will be financed by a tax increase. The Utility sector should particularly benefit from this financial windfall.

The cornerstone of Biden’s program is an increase in the minimum national hourly wage to $15 by 2025, compared to the current $11.80, which should benefit the middle- and low-class households. This direct wealth redistribution should generate positive consequences for the Consumer Staples sector.

About the economic war between China and the United States, the end of the Trump Era should ease tensions between the protagonists. In this context, both exporters and importers should be able to rely on more peaceful relations. As a collateral effect, this newfound stability in international trade relations should benefit emerging economies.

The election of a Democrat to the U.S. presidency is usually combined with an increase in taxes. Biden announced that he wants to increase the corporate tax from 21% to 28% and create a new capital income tax of 15%. The maximum income tax rate would be increased to 39.6%. The increase in taxes on all fronts and additional binding regulations on sectors such as Energy, Financials and Information Technology are expected to have a negative impact.

What about the Trump effect?

Although the polls remain unfavorable to him, it cannot be excluded that in the final stretch, the Republican leader may fall behind even more. Moreover, as a bad loser, he will do everything in his power to contest the election of his rival. In this highly probable scenario, we should see a resumption of volatility in financial markets. In any case, the dollar will not emerge stronger postelection.

Let us now explore the hypothesis of a direct election of candidate Trump. The energy sector (Energy) – particularly fossil fuels, the industrial (Industrials) and financial (Financials) sectors should benefit from a continuation of the deregulation policy which begun in 2016.

In the same vein, the defense segment (Industrials: Aerospace & Defense) could also have a bright future. Pampered by the Republicans but martyred since the Covid-19 crisis, stocks of this sector could regain a new momentum.

Regarding the level of taxes, it will remain favorable to companies, which will generally benefit the business climate.

Finally, the mistrust policy toward its trading partners established by Trump since his arrival to the White House will not calm down. The US-China trade war will continue to the detriment of both importers and exporters. However, the predominantly domestic oriented sectors and companies will probably benefit from that loosing game.

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