The shares to buy for 3 different US election outcomes

With the United States election just a few days away, equities experts are dusting off their crystal balls to work out how Australian investors might take advantage.

A couple of weeks ago, T. Rowe Price Group Inc (NASDAQ: TROW) Australian equities head, Randal Jenneke, presented 3 potential outcomes — and his thoughts on the best shares to hold for each scenario.

Now Betashares Director, Adam O’Connor, has done a similar exercise, coming up with his own 3 possible scenarios and what Aussie investors might do in each.

Scenario 1: blue wave

This is the outcome the polls are suggesting at the moment — Democrat wins in both the White House and Congress.

This would give the centre-left party a clear mandate to reform.

“It’s expected this would include large-scale fiscal spending – with a major focus on clean energy and infrastructure, health care reform, and the possibility of a return to higher corporate taxes and increased corporate regulation,” said O’Connor.

“Though it has been suggested that, with a focus on stimulating the economy and getting Americans back to work post-COVID, any corporate tax reform could be delayed.”

This naturally would make shares related to the clean energy industry or those that are environmentally focused very attractive.

“Biden’s policy agenda… could also accelerate the structural shift towards sustainability and have flow-on effects for Wall Street, with an increased focus on ESG factors,” O’Connor said.

“There could also be tighter regulation on oil and gas exploration and production, particularly for US shale.”

Conversely, the technology industry could suffer from some headwinds.

“There are well-documented concerns from the Democrats around the monopoly power of the tech giants such as Apple, Facebook, Amazon, and Alphabet,” said O’Connor.

“A Biden administration could potentially subject the large digital platforms to greater regulation and take a harder line on antitrust enforcement.”

Scenario 2: shared power

If Biden takes the presidency and the Republicans hold onto the Senate, the Democrats reform agenda would be severely hampered.

“Any change in climate policy would also likely need to be via regulation rather than legislation, while major healthcare reform and tax changes would be difficult to achieve,” O’Connor said.

“On the other hand, policies with bipartisan support such as infrastructure spending would likely be easily implemented.”

In this case, US healthcare stocks could do well.

“The healthcare sector in the U.S. has been trading close to its largest discount to the broader S&P 500 in nearly 30 years as markets have been pricing in an increasing likelihood of a Democratic sweep,” said O’Connor.

“However, under a divided congress any proposed drug price controls are inevitably going to be more difficult to negotiate and are more likely to remain on hold while the government relies on drug manufacturers for a COVID vaccine.”

According to Betashares, in the past 70 years share markets have averaged better returns when the White House and Congress were held by different parties.

“Overall, a divided congress would lead to less policy uncertainty, and combined with a more stable foreign policy and an easing of trade tensions, would potentially be supportive of broad equity valuations.”

Scenario 3: Trump is re-elected

If the status quo remains and the Republicans hold onto both the White House and the Senate, the tech-led bull market has a chance of continuing.

“Trump has always seen the strength of the stock market as a barometer for the success of his administration,” O’Connor said.

“So he appears unlikely to do much to undermine the strength of America’s dominant technology sector.”

The corporate tax cuts he enacted during this first term would survive and the market will not need to price in any climate change-related reforms.

“More than likely Trump will continue to provide support for America’s energy industry.”

Long-term impacts no matter who wins

O’Connor also noted that there are market forces that will prevail regardless of who wins the White House and the Senate.

Recovery out of the COVID-19 recession is a major factor, as is the arrival of a coronavirus vaccine and Federal Reserve policy shifts.

“Structural trends like digitisation and automation could also continue to dictate market leadership, irrespective of who is in the White House,” he said.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Alphabet (A shares) and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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