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How will a Trump or Biden win affect markets?

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The US election is just around the corner, as incumbent President Joe Biden prepares to face off again for the Oval Office against former President Donald Trump in what is shaping up to be a rematch of the 2020 vote.

The differing policies and interests of each candidate and their respective parties mean different markets will be affected depending on who gets sworn into office, and now Peter Garnry, Head of Strategy at investment platform Saxo, predicts how either candidate could affect several industries and themes.

Speaking on Donald Trump, Peter said the former President ‘cannot’ carry forward his 2016-2020 policies ‘without severely risking the trust in USD’ and ‘fiscal stability’ of the economy. However, Trump can support the real estate industry ‘getting back on its feet’ and help small businesses ‘thrive’ if he is in office.

Peter Garnry, head of strategy at investment platform Saxo said, On the other hand, Joe Biden will be ‘forward-looking’ and bring a ‘modern US’ and a ‘firm difference’ with a focus on clean, green energy with companies in that sector enjoying ‘stronger support’.

If Trump becomes President

Last time around, when Trump was president from 2016 to 2020, he had a major focus on supply-side economics seen with his drastic cut in the corporate tax rate.

Many of the benefits from his policies are questionable as it relates to the ordinary American, but the corporate sector and the equity market loved it. With US public debt growing faster than nominal GDP the room for Trump to engage in supply side economics, including cutting taxes, is no longer available.

Trump’s policies from 2016-2020 cannot be carried out without severely risking the trust in USD and the long run fiscal sustainability of the US economy. On a more practical note, there are some obvious sectors of the equity market that might respond positively to a Trump victory

  1. European defence
    Trump has long been critical of Europe’s contribution to NATO and threatened to pull the US from NATO, if he becomes president, or at the very least, not offering any protection for NATO countries contributing the minimum agreed 2% of GDP. It is doubtful that Trump would pull the US out of NATO, but his rhetoric has set off alarm bells across Europe’s capitals and many EU countries are drastically increasing military budgets.
  2. US real estate
    American real estate has had a tough time in recent years. It is a sector where Trump is personally involved, and he also has many powerful friends within the industry. It is, therefore, relevant to see him pushing politics to support that industry getting back on its feet. It’s also something that fits well in Trump’s political focus on improving the lives of regular Americans.
  3. US small caps
    The NFIB Small Business Optimism Index has shown in 2016 and 2020, that small business owners lean in favour of the Republican Party and Trump. Like with real estate, supporting small businesses fits Trump’s narrative under the policy of “America First” and it is therefore likely that small caps will again thrive with him in office.

If Biden becomes president

According to his State of the Union speech in early March, a re-election of Biden will give the US a forward-looking president instead of one wanting to pull the country back in time.

With that, Biden most likely means that he wants to be viewed as the one that drives new forms of energy, increased international collaboration and drives modern solutions for a modern US.

In that regard, the following three industries and themes may be affected positively if Joe Biden extends his stay in the Oval Office. Many of these initiatives were packaged in what was known as the INVEST in America Act, which now has the less pedestrian name the Infrastructure Investment and Jobs Act.

Biden may go all-in on his expansive fiscal policy, running a large deficit, to finance big infrastructural projects in the US to transform the country to be supportive of future productions and industries.

  1. Clean energy
    The Democratic party has for long been the most progressive when it comes to driving the green transformation in the US compared to its counterpart. It is therefore likely that companies within that transformation will enjoy stronger support with Biden as president.
  2. Infrastructure
    It is generally a well-known issue that US infrastructure such as highways, airports, and bridges are in a bad state. This is one of the things that Joe Biden has worked on improving in this presidency and that is likely to continue, helping companies within such industries. Clean water is also a growing issue that may be addressed by Biden.
  3. Financials and semiconductors
    If Biden gets picked it’ll be his final four years, and I believe he wants to make a firm difference and bring change to the US. To do so, he will need to create an environment where the financial industry is able to support some of the major initiatives he set in motion in his period – most noticeably the aforementioned INVEST in America Act and the US CHIPS Act. These policies are designed to strengthen US domestic manufacturing, design and research etc. related to semiconductors. To do so, he will need to create an environment where banks and other financial institutions can offer the financing needed.
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