Lori Calvasina, RBC’s head of US equity strategy, says her firm’s analysts believe a victory for Biden and the Democrats would be “bearish or very bearish” for most of the sectors they cover.
However, Calvasina says that overall market turmoil after the election would be relatively short-lived, and there could be strong tailwinds for some sectors.
She notes that major market events like changes in corporate tax rates are likely to get priced in well before they happen — so investors can’t necessarily wait for the votes to get counted.
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It might feel like the US elections are a long way off, and investors may be tempted to want to tune it all out and wait for the results to roll in on November 4th — or whenever the counting ends.
But as many experts point out, investing means you’re making predictions about what’s going to happen. That means an investor who waits too long to get in position might end up missing the boat. The market won’t wait.
“That’s what we saw around the Trump tax cut passed in December 2017, which took effect in 2018,” wrote Lori Calvasina, RBC’s head of US equity strategy, in a recent note to clients. “Stocks roared higher in 2017 and experienced a major peak in January 2018.”
That’s important because one the market’s chief concerns about former Vice President Joe Biden, who is leading in most recent polls, is his proposal to raise the corporate tax rate to 28% from 21%.
That would hurt earnings by partly reversing the Trump cut, and Calvasina says many of the stocks that did best in the “Trump trade” are lagging as Biden’s poll numbers rise.
After surveying RBC’s analysts, Calvasina notes that most of them see Biden’s election and a potential sweep of Congress by Democrats as bearish or very bearish for the sectors they cover. They see that outcome as especially negative for tech, energy, discretionary, industrials, and financials.
“Our survey results suggest that part of the Biden playbook is to lean into defensive and secular growth oriented sectors, and to lean away from cyclical and value oriented sectors,” she said.
Here’s how RBC is telling investors to implement that notion and look for maximum gains.
Utilities are the only one of the 11 top-level market sectors that could get a comprehensive boost from a “blue wave,” according to RBC.
“Focus on infrastructure investment may become a reality,” analyst Shelby Tucker wrote. “Blue wave a net positive for electric and water, net negative for natural gas utilities.”
Tucker is even more optimistic about the opportunity for yieldcos and alternative energy companies under Biden.
“While we expect the Alternative Energy sector to continue to grow under a Trump second term, it will not receive the same degree of support,” he wrote. “Most renewable policies are conducted at the state level.”
How to play it: Assuming a Biden win, Tucker says American Water Works would be the …read more
Source:: Business Insider