Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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Trump vs Biden: How either presidency will affect US sectors
US Election
Peter Garnry
Chief Investment Strategist
The US election buzz is heating up and with a historically early conclusion to the intra-party fight for presidential candidacy, the campaigning may begin earlier than usual. In this equity note, we offer our early best-guess attempt to predict what industries or themes will be positively impacted if either former President Donald J. Trump or incumbent president Joe Biden wins the election on November 5.
At this point we are still guessing how the market thinks about the US election. Four years ago, it was not until the first direct debate on TV that the market revealed its positioning. This will most likely happen again in 2024, so as we get closer to election day and get to know more about what the two candidacies will focus on, we may change and/or update the takes on what industries and themes will be affected by whomever eventually takes office on January 20, 2025.
If Trump becomes president
Last time around, when Trump was president from 2016 to 2020, he had a major focus on supply-side economics seen with his drastic cut in the corporate tax rate. Many of the benefits from his policies are questionable as it relates to the ordinary American, but the corporate sector and the equity market loved it. With US public debt growing faster than nominal GDP the room for Trump to engage in supply side economics, including cutting taxes, is no longer available. Trump’s policies from 2016-2020 cannot be carried out without severely risking the trust in USD and the long run fiscal sustainability of the US economy. On a more practical note, there are some obvious sectors of the equity market that might respond positively to a Trump victory:
European defence
Trump has long been critical for Europe’s contribution to NATO and threatened to pull the US from NATO, if he becomes president, or the very least, not offering any protection for NATO countries contributing the minimum agreed 2% of GDP. It is doubtful that Trump would pull the US out of NATO, but his rhetoric has set off alarm bells across Europe’s capitals and many EU countries are drastically increasing military budgets.
US real estate
American real estate has had a tough time in the recent years. It is a sector where Trump is personally involved, and he also has many powerful friends within the industry. It is, therefore, relevant to see him pushing politics to support that industry getting back on its feet. It’s also something that fits well in Trump’s political focus on improving the lives of regular Americans.US small caps
The NFIB Small Business Optimism Index has shown in 2016 and 2020, that small business owners lean in favour of the Republican Party and Trump. Like with real estate, supporting small businesses fits Trump’s narrative under the policy of “America First” and it is therefore likely that small caps will again thrive with him in office.
If Biden becomes president
According to his State of the Union speech in early March, a re-election of Biden will give the US a forward-looking president instead of one wanting to pull the country back in time. With that, Biden most likely means that he wants to be viewed as the one that drives new forms of energy, increased international collaboration and drives modern solutions for a modern US. In that regard, the following three industries and themes may be affected positively if Joe Biden extends his stay in the oval office. Many of these initiatives were packaged in what was known as the INVEST in America Act, which now has the less pedestrian name the Infrastructure Investment and Jobs Act. Biden may go all-in on his expansive fiscal policy, running large deficit, to finance big infrastructural projects in the US to transform the country to be supportive of future productions and industries.
Clean energy
The Democratic party has for long been the most progressive when it comes to driving the green transformation in the US compared to its counterpart. It is therefore likely that companies within that transformation will enjoy stronger support with Biden as president.
Infrastructure
It is generally a well-known issue that US infrastructure such as highways, airports, and bridges are in a bad state. This is one of the things that Joe Biden has worked on improving in this presidency and that is likely to continue, helping companies within such industries. Clean water is also a growing issue that may be addressed by Biden.
Financials and semiconductors
If Biden gets picked it’ll be his final four years, and I believe he wants to make a firm difference and bring change to the US. To do so, he will need to create an environment where the financial industry is able to support some of the major initiatives he set in motion in his period – most noticeably the aforementioned INVEST in America Act and the US CHIPS Act. These policies are designed to strengthen US domestic manufacturing, design and research etc. related to semiconductors. To do so, he will need to create an environment where banks and other financial institutions can offer the financing needed.
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