How in the world does an equity investor play this election? Surely the questions come easier than the answers. While I try to think about what stocks might be "Biden stocks" and what others might be "Trump stocks", I think back to four years ago. I certainly would have put the steel stocks in the win column, along with big oil, along with names that would be associated with an infrastructure rebuild. Four years later, markets truly have performed quite well during President Trump's (first?) term. That fact is that steel stocks and big oil, even with the help, are nowhere near the pack in this race.
Perhaps the best thing for the markets that might come out of Tuesday's (today's) election would be certainty, regardless of outcome. Perhaps the worst, would be an extension of uncertainty that lasts for weeks, and ends up ultimately decided in the courts. The market would not like that very much at all. Surely surveys based on sentiment would convey this.
In attempting to position a portfolio for a specific electoral outcome it might just be a little too difficult to do with a significant level of proficiency and with so many variables contributing to the unknown, such as the make-up of the legislature that the incoming or ongoing administration will be forced to work with. Still, the first place investors must go, even if they end up waiting until after the veil of uncertainty is lifted would be where there might be contrasts in proposed policy.
So, where do President Trump and former Vice President Biden differ overtly in what they would like to accomplish. This is not about the virus. Neither has offered more than best wishes. The president's plan has at least mobilized corporate America, but missed the mark on self protection. The former vice president basically says that he will shut down the virus by doing everything that is already being done. No winner there. At least he set an example by wearing a mask.
I see four main areas where the two candidates have already or will have to plant a flag shortly after we know who will lead the next four years. The first is obvious.
Fiscal Policy & Infrastructure
First up... Taxes, or more broadly fiscal policy. The president wants to cut taxes further, which will feel great, but probably be unsustainable longer term. The former Vice President would like to raise taxes. Income taxes on those earning more than $400K per annum. Capital gains taxes and corporate taxes that will negatively impact an estimated 75% of Americans making $50K per annum or more, while reducing corporate earnings by a projected 9% to 12% depending on who you read. That means less jobs. Also means trouble for firms with low effective tax rates.
Both candidates would likely try to get a large fiscal support/infrastructure build package through Congress. The likelihood is that Congress would play a lot nicer with a President Biden, especially if in control of both chambers, than they have for the incumbent. That's a short to medium term positive and possibly a huge positive. That also likely increases supply at the long end of the Treasury yield curve.
Second, we'll circle back to Infrastructure building. The idea is that both candidates push here, but that Biden probably gets it done. That's old school, bridges, roads and airports. As for President Trump, the push for 5G expansions sans help from China matters.
The largest gap here would be in the push from the Democrat's side of the aisle to break up big tech. Is that a positive for owners of equity? It might be. If the firms themselves liked the idea, they would already be on it. The Trump administration has been no fan of this group either, but again it does seem that Biden would have an easier time getting things done with a compliant legislature.
The stocks in focus here would be Facebook (FB) , Twitter (TWTR) , Alphabet (GOOGL) , and to a lesser degree... Microsoft (MSFT) and Apple (AAPL) . I don't really know whose column to place these names in, though Apple would clearly benefit from a relaxed trade environment with China. That's another story entirely, but other stocks that would be impacted similarly would be Broadcom (AVGO) , Advanced Micro Devices (AMD) , Nvidia (NVDA) , and Cisco Systems (CSCO) .
Can there be any more stark contrast between the two candidates than in the field of how this nation provides energy. Renewable versus independence. A lot of middle class jobs in a lot of states will be impacted should there be a shift in policy here. The former vice president plans to invest $2 trillion in clean energy. You don't have to be a genius to figure out the names that will move within this group after we know more about our direction.
One More Thing
Even with more spending, I do not expect defense spending to garner as large a percentage of the federal budget under either candidate as it has over the past four years. Obviously, aerospace and defense will do better under a Trump presidency than under Biden. This potentially impacts in a negative way... Lockheed Martin (LMT) , Northrop Grumman (NOC) , L3 Harris (LHX) , Raytheon (RTX) , and General Dynamics (GD) . The one hedge I see here is in Boeing (BA) . That name, battered as it is, will rebound with the economy when the economy fully reopens due to its (potentially) large commercial passenger jet business... a business that will greatly benefit from better relations with China at that.
(AMZN, JPM, GS, MRVL, FB, GOOGL, MSFT, AAPL, AVGO, AMD, NVDA, and BA are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)