Trump vs. Biden: Which Stocks to Choose for Each Election Outcome

Joe Biden and Donald Trump seem to be headed towards a rematch this coming November. U.S. Presidential elections have significant consequences for both the national economy and the global economic and political landscape. The differences in the candidates’ views on almost everything – except trade relations with China, that appear likely to continue downhill regardless of the winner – emerge as one of the key factors in shaping long-term asset positioning among global money managers.

Geopolitics and fiscal policies don’t change overnight, even under a president as impetuous as Trump. However, investor sentiment can change rapidly and, as a key market-moving factor, discerning the market’s perceptions of potential winning and losing trades for each of the two possible election outcomes would be prudent.

Trump Beneficiaries: Everything Non-Woke

When searching for answers on elections’ effect on the equities markets, history can be used as a guide. Thus, when Trump won the 2016 elections, investors flocked to small caps and financials, anticipating that tax cuts, regulatory easing, and emphasis on “America First” policies, would benefit these companies. During his first term, one of Trump’s signature achievements was a tax overhaul, which helped expand corporate profits and propelled stocks to record highs.

This time around, we may see something similar happening, with several sectors reaping significant benefits from Trump’s policies, which are expected to ease back on scrutiny and oversight. Technology and Healthcare should both be at an advantage, with the larger companies in these industries enjoying a lower antitrust pressure. The Biden administration has singled out the healthcare industry as a priority in its anti-monopoly efforts, and UnitedHealth (UNH) can testify that the heavy hand of Biden’s antitrust enforcers is pressing down on its stock performance, which Trump 2.0 may help mend.

Trump’s Tech Will Shine: Caveats Included

The “Trump trade” is not confined to health giants. Under Biden, the Justice Department has been stepping up its scrutiny of the nation’s largest tech companies, including Amazon (AMZN), Apple (AAPL), and Alphabet’s (GOOGL) Google division. All of them would be happy to be left alone under Trump, allowing them to continue building their business empires. There is an exception, however: companies providing social network platforms such as Meta’s (META) Facebook would be placed under a microscope for their handling of free speech and consumer privacy issues.   

Financials, specifically large banks, are an easy-to-guess play should Trump reenter the White House. In his previous term, President Trump loosened regulation, raising the threshold for the “too big to fail” category. This time around, the Republican candidate said he would repeal Basel III’s increased capital requirements, allowing banks like JP Morgan (JPM) and Wells Fargo & Co (WFC) to retain higher profits.

“America First” on Steroids

Domestic producers selling in the U.S. will fare better than importers under President Trump, as he has promised to double down on his tariff policies. Trump has threatened 60% tariffs on all Chinese goods; however, no country sending goods to the U.S. would be spared from Trump’s protectionist trade policies. A re-elected Trump may introduce tariffs on goods arriving from Europe and other places, especially in industries with significant domestic production. Tariffs would also prop up the dollar, making it harder for the U.S. exporters to sell their goods abroad.

The U.S. industrial and technology sectors will benefit from continued, and probably multiplied, federal support, including increased tax breaks and subsidies. The Biden administration has continued the Trump 1.0 administration’s efforts aimed at reshoring economically important industries and securing critical production, lending a helping hand to industrial companies like Caterpillar (CAT), Eaton (ETN), andRockwell Automation (ROK), which are central to the reshoring momentum.

Trump 2.0 would take these efforts to the maximum possible, supporting companies building plants and data centers on American soil. Thus, tech firms like Intel (INTC), Taiwan Semiconductor (TSM), and others – the direct beneficiaries of the Chips Act – are slated to enjoy increased federal support. Nvidia (NVDA), however, will face increased scrutiny over its exports to China.

Despite the “America First” agenda, some international stocks might also see profits. The Trump administration will be keen to secure an uninterrupted supply of critical minerals, such as battery metals and uranium, from its long-term allies. Some Australian commodity producers may see a windfall from these policies, filling in the gaps left by movement away from China and other emerging markets.

Drill and Guzzle: the Trump Way

Clean energy and other “environmental” stocks might suffer a double blow, as the new Trump administration is anticipated to roll back Biden’s policies, such as the Inflation Reduction Act (IRA) and other legislation supporting these industries.

At the same time, demand for clean energy production could be dented by increases in traditional energy production, lowering gas prices. Energy giants like Baker Hughes (BKR) and Exxon Mobil Corp (XOM) will surely cheer a backpedaling of environmental rules as Trump pushes to boost U.S. oil and gas production. However, investors should be careful, as energy prices are influenced by a myriad of factors, with many of them out of the administration’s reach. Namely, higher production doesn’t necessarily mean higher stock prices.

Trump administration is also expected to repeal all subsidies to electric vehicle (EV) producers, favoring a market-driven approach to determine the winners. With Tesla (TSLA) sales flagging despite the current EV-friendly policies, we may assume that under Trump, legacy automakers like Ford (F) and General Motors (GM) will take the lead.

However, Tesla should not be discounted. Elon Musk, sarcastically dubbed “Progressive Enemy No. 1” by The Wall Street Journal, is fighting several regulatory and legal battles against Biden’s federal agencies, ranging from his anti-union stance to safety issues with Tesla autopilot. A shift toward lighter oversight could benefit Musk’s empire, including the Tesla business.    

Defense on the Fence  

In his first term, Trump pushed NATO allies in Europe to pay up for their own defense, instead of relying on U.S. military might. This time around, the former President has threatened to pull the U.S. out of the military alliance altogether. Even if it remains an empty threat, the accelerating risk from a belligerent Russia doesn’t leave Europeans much choice but to open up their coffers and arm themselves.

The European arms race is well underway, but Brussels needs to do more to reduce its dependence on U.S. military support and to prepare for possible Russian aggression. Europe’s arms manufacturers are working around the clock, but the continent’s existing capacity is nowhere near sufficient. Since Russia invaded Ukraine two years ago, almost 60% of Europe’s military gear purchases have been paid to American contractors. The U.S. aerospace and defense manufacturers like Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC) will be playing a large role in European self-defense efforts for years to come, reaping large profits on the way.

On the other hand, contracts originated by the U.S. government may subside under Trump 2.0. Trump is a supporter of a more isolationist America, emphasizing the U.S. “minding its own business” over solving global problems. That would mean less funding for arming Ukraine and other U.S. allies, i.e., less money flowing to defense contractors from federal coffers. However, for all the loud talk, Trump 1.0 increased defense spending, so it’s not so clear-cut.     

On the whole, Biden 2.0 would probably be preferable for defense companies. During his current term, the Biden administration has been generous to allies, flooding them with U.S.-made arms. Biden’s victory in November would likely perpetuate this foreign policy agenda, maintaining or even increasing the flow of federal funds to the military industry.   

The Biden Trade: Green Goes Greener

A second term for the incumbent would likely mean continued policy implementation, reducing uncertainty. Thus, the infrastructure investments will continue, benefitting builders, materials producers, and construction machinery makers. However, Trump is also a supporter of infrastructure and development investments, underpinned by his “Proudly Made in the U.S.A.” agenda.

However, there will be some differences here as well. While Biden will continue supporting investments in clean energy transmission and EV-charging networks, Trump may act to repeal these provisions within the Infrastructure Investment and Jobs Act. If Biden is re-elected, “green” industries are expected to see their stocks rise.

Biden’s newly announced $623 million grant program aimed at building an EV-charging network across the U.S. – benefiting companies like ChargePoint (CHPT). Another beneficiary of Biden 2.0 would be solar energy producers like First Solar (FSLR) and Enphase Energy (ENPH). Despite Musk’s love-hate relationship with the Biden administration, Tesla and its peers would likely be better off, reaping millions in subsidies and tax breaks.

Healthy in Any Weather

It must be said that infrastructure investments are a bipartisan issue, so the “Rebuild America” momentum will survive and flourish under any administration. In short, providers of building materials such as Vulcan Materials (VMC) and RPM International (RPM) should do well no matter who sits in the Oval Office next year, as their offerings are indispensable for building houses and bridges, as well as a wall along the Mexican border.

In addition, all stocks connected to the “reshoring” trend should continue growing under both presidents, from engineering services firms like Jacobs Solutions (J) to logistics management services like GXO Logistics (GXO), to heavy-equipment-as-a-service providers like United Rentals (URI).

Interestingly, the Healthcare sector may also benefit if Biden remains in the White House. While the current administration is expected to continue its scrutiny of drugmakers’ pricing policies, other industries within the sector could see upside opportunities from reform initiatives. For example, Biden may act to expand Medicare and Medicaid programs, benefitting healthcare providers like Humana (HUM) and Molina Healthcare (MOH).   

The Investing Takeaway

With the national debt smashing records while interest rates remain high, the Biden government would look for additional sources of financing, and what could be easier than squeezing some more dollars from cash-rich companies? So, if reelected, Biden may further raise corporate taxes, weighing on bottom lines and possibly leading to overall market declines. If investor sentiment sours, tax breaks for the few chosen “green and clean” industries will not make much difference.

On the other hand, if the stars align and the inflation comes down to the Fed’s target range, the central bank’s rate cuts will strongly boost stock markets. The long-awaited monetary easing would outpace any negative effect from Biden 2.0 policies, at least in the short run. With every election cycle becoming increasingly polarized, the election outcome may have a pronounced impact on stocks in different sectors and industries, affecting them through different government policies. However, history shows that elections don’t have as meaningful an impact on overall medium- to long-term stock market performance as economic cycles do. So, investors are advised to closely follow economic data, as well as each prospective investee’s fundamentals, as they matter appreciably more than who will be sworn in for another term next January.