By Gene Balas, CFA®
Investment Strategist
As we look ahead, a question many investors may be asking in an election year would be, how would different industries be affected by either a Joe Biden administration or a Donald J. Trump administration, depending on the outcome of the election in November? Each candidate has different views about things such as taxation and regulation of different industries, as well as specific policies aimed at benefiting certain industries in the U.S. economy.
However, before positioning our portfolio based on each presidential candidate’s views, we must remember that unless a policy is an executive order (and passes any judicial challenge), Congress must enact the legislation. And we don’t yet know what the makeup will be of either the Senate or the House of Representatives after the 2024 elections – and it is Congress that will actually draft legislation, which in turn must pass both houses of Congress and then be signed by the President.
That said, we can consider what each candidate has said on the campaign trail, and what their previous policies have been, considering we have experienced the leadership of both candidates already.
In a second term under President Biden, industries that might benefit from proposed regulations include:
- Manufacturing: The Biden administration has placed a strong emphasis on revitalizing the American manufacturing sector, particularly in areas such as clean energy, electric vehicles, and high-tech semiconductors. Initiatives like the Inflation Reduction Act and the CHIPS and Science Act aim to bolster domestic production capabilities and have spurred approximately $220 billion in manufacturing construction investments over the last 18 months. This is expected to generate a significant number of manufacturing jobs, although many of these jobs may not materialize immediately. However, industries involved in producing car parts, computer chips, and construction materials stand to benefit from increased investment and subsidies, Politico notes in an article titled, “Biden’s manufacturing boom is underway. But the jobs haven’t followed yet.” by Adam Cancryn on January 19, 2024.
- Renewable Energy and Clean Tech: Biden’s policies are geared towards reducing carbon emissions and promoting green energy. The Inflation Reduction Act includes tax credits intended to stimulate private-sector investment in electric vehicles, batteries, and other clean energy components. Companies in the renewable energy sector, including solar, wind, and electric vehicle manufacturing, are likely to benefit from these incentives, according to Politico.
- Healthcare and Pharmaceuticals: Although specific recent regulations were not detailed, Biden’s past initiatives aimed at expanding healthcare access and affordability, such as strengthening the Affordable Care Act, could continue to influence this sector. Policies reducing prescription drug costs and expanding Medicare benefits may impact pharmaceutical and healthcare companies, potentially benefiting industries involved in health insurance and care provision, according to the Brookings Center on Regulation and Markets Regulatory Tracker.
In a second term under President Trump, the benefiting industries could be inferred from his previous term’s policies, as recent specific proposals have not been detailed in his campaign thus far:
- Fossil Fuels and Traditional Energy: Trump’s administration was known for deregulatory actions favoring traditional energy sectors, including oil, gas, and coal. Removal of environmental regulations and support for pipeline constructions were hallmarks that, if continued, could benefit these industries again.
- Financial Services: Trump’s previous term saw efforts to roll back parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A second term might continue in the direction of reducing regulations on banks and financial institutions, which could benefit the financial sector.
- Real Estate and Construction: Trump’s policies previously aimed at easing regulations to encourage construction and real estate development, including efforts to streamline environmental review processes. A second term could see further benefits for these industries through reduced regulatory hurdles.
The regulatory changes proposed by the Biden administration are noted as being incremental rather than drastic, aiming to improve the existing regulatory framework while still respecting cost-benefit analysis principles. This approach includes modifications to enhance technological advancements in rulemaking, increase engagement with underrepresented communities, and ensure that economic analyses of regulations consider distributive impacts and equity. These changes could affect a broad array of sectors by potentially introducing new regulatory considerations that affect how businesses operate.
Of course, it is a long way until the November election, and each candidate will likely spell out more detailed proposals between now and then. And the House of Representatives and Senate elections are equally important, given the current razor-thin majority Republicans have in the House, and that legislation is made in Congress, not by the President (aside from executive orders, which can be challenged in court).
Attempts at analyses of historical patterns of whether Democrats or Republicans are better for the markets often don’t yield statistically significant results, and there are many factors, like economic and geopolitical conditions, that are more useful barometers for assessing market trends.
Remember that regardless of whether the federal government is red or blue, the economy tends to grow as the population expands and labor force productivity increases (measured as economic output per hour worked), often due to new technologies being implemented. Neither of those factors are usually determined by government policies.
And if we have a divided government, where the Executive branch and one or both chambers of Congress are of differing parties, little legislation being advanced is often the result, which has historically tended to be favorable for stocks. In any case, the factors that affect stock prices – whether positive or negative – are in most cases not influenced by the government in our free market economy.
In the end, though, what is said on the campaign trail may eventually affect a given basket of stocks, but until then, there is always uncertainty. In other words, be cautious before placing any bets in your portfolio based on what may transpire between now and when any laws are passed. We stand ready to help you navigate this uncertainty. Please reach out to your advisor who is always ready to assist.
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