The Democrats appear to be heading for the White House, so what sectors should investors be looking at?
With law suits seemingly flying in at regular intervals, it’s clear the path to the White House for either candidate will be less a high-speed highway and more a maze of Montreal pot holes.
Stuart Sweet, president, Capitol Analysts Network, previously worked as a senior legislative assistant to Representatives Dan Quayle and David Stockman, and Senators Richard Schweiker, John Heinz, and Paula Hawkins.
He said that, at 11am yesterday morning, he’d give Democrat Joe Biden an 80% chance of winning the presidency, expecting the 77-year-old to claim Arizona, Wisconsin, Pennsylvania, Nevada and “probably” Georgia, with President Donald Trump looking like he’s got enough to win only North Carolina.
Sweet said the election has been humbling for both parties, with a potential Democrat victory less emphatic than hoped for and the Republicans now staring at defeat. So, if we take a Biden win as the most likely, investors and markets will be looking at its impact and where the smart money should go.
A major factor is the fact that it’s likely going to be a divided government – with Congress blue and the Senate red. Legislation will, therefore, require compromise.
Sweet said: “That does not mean it's risk free, but it means you're not likely to get an extreme outcome like large tax increases or shocking policy changes. One of the reasons why the market is going higher is a sigh of relief that a lot of the legislative risk has been mitigated.”
Both parties want an infrastructure bill next Congress. Sweet explained that from a Democratic point of view, there is slack in the labour market and, being classically Keynesian, will want to get people back to work. Conservatives will look at studies that suggest a 2% and 7% real return awaits if infrastructure is repaired. Purchasing shares in affected companies and industries could, therefore, be an option, Sweet said.
The Biden effect
Should Biden take over the White House, he will move to normalize trade relations with Europeans and also rejoin with the TPP (Trans-Pacific Partnership) and the Asian TPP agreement that's built to try to restrain China. Sweet added that this will be viewed as market friendly and relief that the trade wars will not expand.
He explained: “I'm not expecting any short or quick resolution with the Chinese controversy. Trump’s impact means something like 75% of the country now has a hostile or least unfavourable attitude towards China. Joe Biden is not going to have the power or the desire to tackle that early and do anything much about it. In the long run, the Chinese will likely make some sort of face-saving set of concessions to Joe Biden that they never would have met to Donald Trump, with the understanding that it puts the trade friction behind them and that the bilateral relationship can move on to other things.”
That, he added, is unlikely to happen any time soon and Sweet would not be buying Chinese stocks at this point.
Where are the opportunities for investors under Biden? With a very narrow house majority, Barack Obama’s VP will not have much legislative firepower ideologically but he will have ammunition on the regulatory front. Green energy will be at the forefront of this, so electric cars are ripe for investors. Sweet sees an aggressive pathway towards implementation of electric cars on America's roads. Biden will also be able to stimulate growth in solar energy and wind energy using the Clean Air Act.
He said: “For Biden, there is virtually nothing that Senate Republicans can do to stop it. It's only a question of how fast Biden wants to go. I expect him to be fairly aggressive, because he's going to have to show results. The Democrats are quite united on the green energy idea and decarbonizing America.”
The deregulation of cannabis will also move forward and Sweet believes there is still some money to be made in weed stocks if you’re of mind to play it.