S&P 500 ETFs to Surge If Trump Wins Second Term?

Sanghamitra Saha
·4-min read

With just a few days remaining to the presidential election, all eyes are centered on polls. Some political analysts believe that Trump’s measured performance in the Oct 22 debate, along with Joe Biden’s call for closing the job-rich oil and gas industries, may offer the President a shot in the arm in the final days of his campaign, as quoted on Fortune.

Currently, “Biden leads by 8.3 points nationally, according to an average of polls compiled by RealClear Politics. His lead is down to 4 points in the key battleground states. Additionally, traders on the betting platform PredictIt are pricing in a 54% chance of a Democratic sweep,” as quoted on Fox Business.

So, anything could happen on the Election Day. One should not forget that Trump won the election in 2016 despite trailing the then-Democratic candidate Hillary Clinton in many polls. Against this scenario, if Trump wins the second term, let’s see what could be in store for the S&P 500 ETFs.

What’s in Store for Markets?

"Since 1950, the benchmark S&P 500 has gained 9.6%, on average, in the year following the reelection of a president", according to an analysis from LPL Financial, as quoted on Fox Business. The index has gained 71% of the time. On the other hand, the S&P 500 has averaged a 4.8% uptick if the incumbent loses while rising half of the time.

According to JPMorgan, an “orderly Trump win” would be the best-case scenario for the stock market as the S&P 500 may rise to approximately 3,900, as quoted on Fox Business. If Trump wins, JPMorgan believes that deep value sectors like energy and financials would gain due to a large short squeeze.

On the other hand, a Joe Biden victory could cause investors to book profits in the soaring tech stocks as investors would want to avoid the potential increase in the capital gains tax. Biden has proposed raising the top tax rate for capital gains for the highest earners to 39.6% from 23.8%, the largest real increase in capital gains rates in history. That rate would apply only to households with income exceeding $1 million, which make up the majority of capital-gains income (read: All About Biden's Tax Plan & Its Impact on the ETF World).

“History shows stock prices fall, equity allocations decline, and momentum underperforms ahead of increases in the capital gains rate,” wrote a team led by David Kostin, chief U.S. equity strategist at Goldman Sachs. However, “any potential selling will be short-lived and reversed in subsequent quarters,” per Goldman, as quoted on Fox Business.

Moreover, Trump is also in favor of fat stimulus measures after election. Though the extent of the measures is yet not decided, some sort of fiscal stimulus is highly likely to be received by the economy.

What Will Win Ahead? Covid Fear or Huge GDP Growth

The U.S. economy is expected to exit its COVID-19-induced recession, with annualized growth of 35.3%, according to the Federal Reserve Bank of Atlanta's GDPNow. The economy shrank at an annualized pace of 5% and 31.4% during the first two quarters of the year. While such upbeat data could act as a tailwind for Trump, rising COVID-19 cases may thwart the winning momentum.

S&P 500 ETFs to Win

Considering this backdrop, we believe that the broader market and S&P 500 ETFs like iShares Core S&P 500 ETF IVV, Vanguard S&P 500 ETF VOO, SPDR SP 500 ETF SPY and Invesco SP 500 Equal Weight ETF RSP will remain steady in the medium term.

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SPDR SP 500 ETF (SPY): ETF Research Reports
 
iShares Core SP 500 ETF (IVV): ETF Research Reports
 
Vanguard SP 500 ETF (VOO): ETF Research Reports
 
Invesco SP 500 Equal Weight ETF (RSP): ETF Research Reports
 
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