As the 2024 U.S. presidential election approaches, the volatility and uncertainty within the stock market have investors on high alert. UBS strategist Andrew Garthwaite has identified two groups of stocks that could be affected by the potential outcomes of the election. With polling data indicating a competitive race, this analysis underscores how different leadership styles can impact financial markets and various sectors.
Garthwaite believes that a victory for former President Donald Trump would be advantageous for the equity market, particularly for the financial sector. He predicts that Trump’s administration would invoke a friendlier regulatory environment that would favor financial institutions. The prospect of increased tariffs under a Trump administration is seen as inflationary, potentially prompting the Federal Reserve to raise interest rates to curtail inflationary pressures. This scenario indicates a favorable outlook for the domestic manufacturing sector, where companies could see a surge due to a preference for U.S.-made products over imports.
Conversely, should Vice President Kamala Harris win the presidency, Garthwaite foresees a tougher climate for stocks that thrive under protectionist economic policies. However, sectors with substantial consumer exposure to China may benefit, alleviating fears of aggressive tariff implementations. In light of this, companies involved in global trade logistics – especially freight transport – might experience growth, reflecting the international trade dynamics that Harris’s policies could encourage.
The Current Market Landscape
Recent market trends reveal a slow decline with the S&P 500 dipping 0.8% this week. Historically, the week leading up to elections tends to show a median gain of 0.76% for this index, a fact supported by data from FactSet. Investors often anticipate directional clues based on election results; hence, stock performance during this period serves as a barometer for market sentiment. UBS’s research points towards a favorable outlook for stocks projected to benefit from a Trump presidency, but caution is warranted given the unpredictable nature of elections—something vividly illustrated in previous elections such as Brexit and the 2016 U.S. presidential race.
The stocks that are categorized as beneficiaries in a potential Trump administration predominantly consist of financial stocks, like Citigroup and Goldman Sachs. Both banks delivered impressive third-quarter earnings, with Goldman Sachs reporting a remarkable 20% growth in investment banking revenue. Given a potentially relaxed regulatory atmosphere under Trump, these banks could see increased Mergers & Acquisitions (M&A) activity and an overall boost from a steeper yield curve.
However, Garthwaite cautions that the utilities sector might suffer under a Trump administration, as rising bond yields may put pressure on utility stocks, which historically perform poorly in such conditions. The possibility of the Trump administration rolling back favorable regulations for renewable energy companies also presents a noteworthy risk for these stocks.
Conversely, stocks that could benefit from a Harris victory include companies deeply connected to consumer spending, such as Nike. Despite facing a considerable decline in share price this year, Nike’s positive revenue projections indicate potential resilience within a market scenario that favors global trade. A Harris administration might ease worries surrounding steep tariffs on Chinese imports, granting companies like Nike a moment of respite.
The intricate and ever-changing landscape of the stock market highlights the significant influence political outcomes can exert on economic environments. As the election approaches, investors are advised to be cautious and well-informed, navigating the potential fluctuations that lie ahead. Garthwaite’s insights present a dual narrative, illustrating how different political trajectories can unleash distinct market dynamics for various sectors. Ultimately, being prepared for both possibilities can position investors to leverage opportunities regardless of which party claims victory.