The U.S. presidential election is one of several underestimated policy risks in the second half of this year.
With about six months to go until the U.S. presidential election, before voters go to the polls, investors need to start thinking about how this hotly contested election - and the possibility of a "split Congress" in the election - will affect their portfolios.
Although the U.S. stock market sold off in April, stocks have been mostly rising steadily so far in 2024. However, J.P. Morgan Securities equity strategists pointed out in a report released on Tuesday (May 8) that as the "second showdown" between Biden and Trump enters its climax, the volatility of the stock market may increase significantly.
"We believe that the U.S. election is one of several underestimated policy risks in the second half of this year," the strategists said in the report. Therefore, they have studied stocks that may be affected by different results of the election.
JPMorgan Chase strategists predict that if Trump wins, he may increase his efforts to promote trade protectionism, and large US companies that rely on imported goods will be adversely affected, including General Motors (GM), Hasbro (HAS), Mattel (MAT), Nike (NKE) and Walmart (WMT), but Trump's reforms to increase domestic drilling permits will benefit oil companies, and Baker Hughes (BKR), ExxonMobil (XOM) and ConocoPhillips (COP) will get a boost.
JPMorgan Chase believes that if Biden is re-elected president, the stocks of US semiconductor companies that benefit from the Chips and Science Act will be boosted. JPMorgan Chase strategists predict that Applied Materials (AMAT), Texas Instruments (TXN) and Intel (INTC) are expected to be winners. A re-election of Biden would also lead to more environmental measures, which would benefit generator maker Generac (GNRC), solar company Sunrun (RUN) and electric vehicle charging network EVgo (EVGO).
However, tensions between the U.S. and China are likely to persist regardless of who ultimately wins the White House.
"In particular, both candidates are hawkish on China, and we have not seen a clear path for U.S.-China relations to return to normal before the trade war, so companies with at least 15% of their revenue coming from China, such as Apple (AAPL), Nvidia (NVDA), Tesla (TSLA), Agilent (A) and Broadcom (AVGO), could be negatively impacted," the strategists said in the report.
Some Wall Streeters believe that investors should not make too many assumptions about what will happen after the November election. Although investors are familiar with Biden and Trump, the market has made many misjudgments in the past about how the election will affect certain stocks and sectors.
JPMorgan strategists said: "In 2017, the market expected the Trump administration to strongly support the energy industry, but by the end of Trump's first term in early 2021, energy stocks had fallen 30%. The COVID-19 pandemic was one of the reasons. The stock market fell sharply in early and mid-2020, but investors should understand that policy is only one of many influencing factors, and other macro/special drivers still play an important role."
At the same time, Morningstar analysts also pointed out in a report released recently that Trump often criticizes large technology companies and social media companies, and Biden prefers alternative energy to oil, but "contrary to people's intuition, technology stocks performed best during Trump's term, and energy stocks performed best during Biden's term."
In addition, Morningstar analysts also pointed out: "It is not the US president himself who implements the policy. Taxation and spending are determined by Congress. At the same time, the Federal Reserve is an independent agency that oversees monetary policy. ”
So there’s not much investors can do to prepare for the uncertainty surrounding the election. It’s hard enough to predict what the economy, the Federal Reserve’s interest rate policy and corporate earnings will look like a few months from now, let alone who will win an increasingly tight presidential race.
Lamar Villere, partner and portfolio manager at Villere & Co, sees less mystery in this year’s election than when Trump first ran in 2016. “Obviously this election is getting a lot of attention, but from a market perspective, an incumbent versus a former president is a much more stable situation,” he said.
Investors have seen both of them, and the election won’t have any significant impact on how we manage our portfolios, Villere said.
In other words, don’t pay too much attention to the noise coming out of Washington.
“Earnings and cash flow are more important market drivers than politics,” said analysts at Morningstar.