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A new coronavirus stimulus deal is still in the works between Democrats and Republicans, bu they can’t agree on a conclusion.
Industries from fossil fuels to pharmaceuticals could feel the impact of a Biden-Harris administration.
But first, it’s important to do understand the limits of what President Job Biden can do. A potentially split Congress would constrain his ability to roll out plans for a large-scale fiscal stimulus, tax cuts, health care and climate legislation, analysts say.
“The likelihood of sweeping healthcare reform or massive regulatory action against Big Tech, energy or financial sectors would be significantly diminished,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, an investment adviser, said in a note.
In theory, certain industries could benefit from one party or another winning. Under a Biden presidency, renewable energy, infrastructure and stocks affected by trade policy stand to benefit.
But other factors beyond Washington can influence how industries perform.
For instance, the top two best-performing sectors and the worst two have been the same under both President Barack Obama and President Donald Trump, according to SunTrust Private Wealth Management. Technology and consumer discretionary both posted double-digit returns during both of their presidencies, while financials and energy were the bottom two performing sectors.
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Following the last presidential election outcome, the consensus was that financials, energy and small caps would do well, but each underperformed the S&P 500.
Here are potential sectors and industries that analysts forecast could outperform, and those that are poised to face challenges in a Biden-Harris administration:
In a split Congress scenario, with a Republican Senate and Democratic house, technology stocks would perform the best with a Biden administration, according to investment firm Raymond James.
A divided government means minimal impact on the sector, analysts say. Regulatory risks for big tech may continue to rise modestly, but experts say they are manageable and will likely take years to play out.
Analysts don’t believe there is much appetite in Washington to pursue new antitrust or tech-specific legislation. Rather, it seems that politicians may be waiting to see how the ongoing antitrust investigations play out.
A Biden presidency with a split Congress is the best near-term outcome for health care, according to UBS analysts.
Substantial changes to health-care policy or drug prices now look less likely without a Democratic blue wave, the analysts said. More aggressive Democratic policies on drug pricing and a public option for health insurance are unlikely to pass a GOP Senate.
Moderate drug pricing legislation remains possible, but the probability of a bipartisan compromise on any health policy legislation is below 50%, according to UBS.
Although a Biden victory would likely increase infrastructure spending, analysts anticipate that a divided government will probably reduce the size of any potential program. Analysts at UBS expect infrastructure spending to be focused more on traditional projects like roads, bridges and overall construction.
Biden’s green initiatives are likely to face more opposition from a divided government and would likely be scaled back—if they get funded at all. This scenario would be positive for machinery, building materials and construction and engineering companies, but negative for stocks of companies connected to climate, alternative energy, and green technologies given how well those shares have done recently, UBS analysts said.
Industrials and materials
A Biden win and a split Congress is a net positive for both industries due to likely lower trade tensions, no risk of a tax hike and less regulatory pressure.
Railroads, defense and waste industries would benefit from the lower odds of a tax hike, analysts say. Defense companies would also benefit from lower risk of a cut to defense spending. Construction, building materials and alternate energy stocks would be hurt from less spending on infrastructure and green tech, according to analysts.
Consumer discretionary and consumer staples
The consumer is poised to benefit from another round of stimulus measures, even with a smaller package than in a blue wave scenario, experts say. Historically low interest rates should help housing and home improvement stocks. Affluent consumers should benefit from a much lower likelihood of tax increases.
The outlook for energy remains uncertain. It has been among the worst performing sectors of the past decade, driven in large part by low crude and natural gas prices. Analysts expect some volatility until uncertainties, mostly pertaining to the oil price outlook, ease. Most energy risks will stem from regulatory policy rather than congressional action, according to analysts.
Regulation of the oil and gas industry will likely increase, though it will take time. Many states rely on the significant revenues from oil and gas production—a reality that may make restrictions on the industry more difficult under current economic conditions.
Still, renewable energy including wind and solar is likely the biggest energy winner, according to UBS. Natural gas, meanwhile, will remain an important bridge fuel and relatively cleaner alternative to coal for U.S. power generation, which should limit risks.
Energy stocks tied to fossil fuels have underperformed the broader market recently. While there are challenges for the energy industry, any efforts at sweeping changes by Biden could be limited because of the fragile state of the U.S. economy.
A Biden victory and divided Congress is mixed to slightly negative for financials, analysts say. The next stimulus package is likely to be lower than would have been the case in a blue wave, weighing on interest rates.
Bank stocks are sensitive to interest rate changes. But this is somewhat offset by a lower likelihood of tax increases.
Regulatory risks should ease somewhat if the Senate stays in Republican hands. Still, analysts expect that a Biden administration could name new regulatory leadership that could interpret laws and regulations in a less industry-friendly way.