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Upgrade to Premium 2024 election: Top portfolio plays for a Trump or Harris victory Seana Smith · Host Sun, Nov 3, 2024, 11:18 AM 6 min read
In This Article:
HUM UNH STLA XHB GM
Buckle up.
That’s the message from Wall Street pros as investors brace for a close 2024 presidential election.
So far this year, the S&P 500 (^GSPC) has rallied 20%, making 2024 the best Election Year through October since 1936. But that outperformance could be at risk, at least in the immediate term, as the too-close-to-call race is largely expected to trigger market volatility.
• USD (^GSPC)
Predictions market Polymarket currently shows a 59.5% chance that Donald Trump will win the election, and that’s prompted a return of the so-called Trump trade. Treasuries dropped and gold soared once again this past week as investors bet that Trump’s proposed policies surrounding tariffs and tax cuts could prove to be inflationary.
“The key for markets will be certainty in the outcome from which to understand economic impacts and evaluate implications for the trend of economic growth and evaluation of sector winners and losers,” Rob Haworth, US Bank Wealth Management senior investment strategist, told Yahoo Finance.
Given the key themes that have emerged from Trump's and Harris’s respective campaigns, I asked a number of strategists what a Republican versus Democratic presidency means for business and Wall Street and narrowed that list down to three trade ideas under each scenario.
Trump trades: Financials, gold, managed-care insurers
Financials
Financials is viewed as a top trade under a Republican presidency on the expectations for looser regulation and increased M&A activity.
According to a recent note from Fitch Ratings, a July 2021 executive order under the Biden-Harris administration encouraging greater scrutiny of mergers has impeded deal activity — guidance that is expected to change under Trump.
“While no proposed mergers have been formally denied since the directive took effect, approval times have increased markedly and, in some cases, to the point of making deals non-viable, as market conditions turned during the review period,” Christopher Wolfe, head of North American banks for Fitch Ratings, wrote in a note.
UBS Global Wealth Management ElectionWatch co-lead Kurt Reiman told me financials stand out as a “key beneficiary” in both a Red sweep scenario (meaning Republicans control the White House, Senate, and House) and a Trump presidency with a split Congress.
Reiman said a looser regulatory environment could lead to lower costs and greater ability to return capital to shareholders, as well as a higher likelihood that consolidation in the financial services industry would face less resistance.
On the flip side, Reiman and his team see Democrats controlling the White House, Senate, and House as a “worst-case scenario” for financial services due in part to the probability of greater support for the Credit Card Competition Act — a bill he views as ushering in new regulations and stricter interpretations of current rules.
Bank of America’s Jason Kupferberg echoed a similar sentiment. In a recent note to clients, Kupferberg and his team wrote that a Democratic sweep would be a “worst case scenario” for the payments sector for two reasons: higher probability of a tougher stance on the DOJ’s lawsuit versus Visa and the potential for new laws to lessen Visa's (V) and Mastercard's (MA) competitive edge in the US.
Gold
The expectation of higher spending under a second Trump administration has sent gold (GC=F) prices to record highs. The precious metal closed the week at $2,734.44 an ounce, bringing its year-to-date gains to 34%.
• USD (GC=F)
And the run may be far from over, according to Wealth Alliance president Eric Diton.
“We just don't have a plan as a country to deal with our $35 trillion in debt and growing … I haven't heard any talk about any kind of reduction in spending from either candidate,” Diton told me.
While neither candidate seems to have a plan to address the country's ballooning deficit, a recent analysis from the Committee for a Responsible Federal Budget estimated Trump’s policies could add $7.5 trillion to the national debt over the next 10 years, compared to $3.5 trillion under Harris.
Managed-care insurers
Managed-care insurers could see some relief under a second Trump administration due to the likelihood of greater support for privatized programs like Medicare Advantage — an approach long preferred by Republicans.
And that could give a boost to companies like Humana (HUM), UnitedHealth (UNH), and CVS (CVS).
Oppenheimer’s Michael Wiederhorn named Humana as the firm’s "best idea" for a Republican sweep, noting that Medicare Advantage beneficiaries account for 87% of the company’s premium revenue.
“The key ways that a Republican regime could support MA include strong rate increases and a favorable regulatory environment,” Wiederhorn noted.
• USD (HUM)
Harris trades: EVs, homebuilders, discount retailers
EVs
It’s a pivotal election for the electric vehicle industry, and not just because of Trump’s close ties with Tesla (TSLA) CEO Elon Musk. Rather, the former president’s promise to roll back the Biden administration’s EV policies on "day one" could have significant implications.
“This week’s election, and the potential shift in government regulations based on who wins, will be more consequential to the automotive industry than any previous election,” iSeeCars executive analyst Karl Brauer said in a statement.
Earlier this year, RBC’s Tom Narayan told me Trump’s “erratic” behavior during his first term left the auto industry uneasy, and they view his past threats as a potential challenge to their business if he were to be elected.
On the other hand, Harris has been supportive of the current administration’s efforts to expand access to EVs. She's largely expected to extend the Biden-era $7,500 tax incentive for new EVs and $4,000 for used EVs — a credit that Guggenheim’s Ron Jewsikow has told me is a “key affordability enabler.”
Wedbush’s Dan Ives sees a Harris ticket as a positive for General Motors (GM), Ford (F), Stellantis (STLA), and the EV industry more broadly, including Tesla.
• USD (GM)
Homebuilders
Harris’s promise to support the housing market and make home affordability a centerpiece of her economic agenda is a bullish sign for homebuilders, according to Oppenheimer.
The team, led by analyst Tyler Batory, sees Harris’s plan to build three million new housing units and improve housing affordability as a key catalyst for the sector. The team named D.R. Horton (DHI) a top housing play, making the case that the stock is “uniquely positioned” given its focus on entry-level housing.
“The company’s lower ASP (pricing) should benefit from increased demand from a tax credit, and its scale would allow further ramping of home production,” Batory wrote.
In the company’s third quarter earnings call, D.R. Horton CEO Paul Romanowski warned affordability and election uncertainty had prompted “some buyers to stay on the sidelines in the near-term," sending ripples across the industry. The SPDR S&P Homebuilders ETF declined 1.6% for the week, bringing its one-month loss to -8%.
• USD (XHB)
Off-price retailers
More social support under a Harris administration will boost off-price retailers, according to Evercore’s Michael Binetti.
“A blue sweep would likely benefit the lowest income consumers and within our space, Burlington Stores has the lowest income demographics and a bigger margin opportunity than Ross Stores,” Binetti wrote.
Off-price retailers have outperformed this year as consumers hunt for value amid sticky inflation. Burlington Stores (BURL) posted better-than-expected earnings and raised its outlook during its most recent quarterly report, while Ross Stores’ (ROST) value offerings helped boost sales by 7%. Shares of Burlington have soared 100% over the past year, while Ross has jumped 21%.
• USD (BURL)
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.
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