Sector ETFs to Win/Lose If Biden Wins Elections
Apart from COVID-19, the presidential election is a pretty hot topic now, especially with the event just a few weeks away. Chances of Democrats taking over the House and Senate in November are rising. Per the asset management company DWS, there is a 60% probability of Democratic candidate Biden winning the Presidency and a 42% chance for Democrats winning the Presidency and both Houses of Congress.”
So, investors must be interested in Biden’s political strategy and its impact on the investment world. Amid many other proposals and agenda, Biden’s $4-trillion-tax plan has been the most talked-about lately. Against this backdrop, below we highlight a few sector ETFs that are likely to gain/lose amid a sweeping blue wave.
Wining Sectors
Alternative Energy
The alternative energy space has always been supported by the Democratic leaders. If Democrats rule the Congress and the White House again, the stocks and ETFs in the space will get a boost. Biden is forming a plan — a Clean Energy Revolution — to address the issue of climate emergency. He sees America becoming a 100% clean energy economy and net-zero emissions no later than 2050. The move could further benefit ETFs like Invesco Solar ETF (TAN) and iShares Global Clean Energy ETF ICLN.
Consumer Staples
Biden proposes to maintain the tax cuts that Trump signed in 2017 for households making less than $400,000, including the larger standard deduction and child tax credit. However, Biden is likely to start the tax again at wages above $400,000, per a Wall Street Journal article. Overall, benefits for the low-income group means no tensions for consumer stocks, especially the staple ones. So, ETFs like iShares U.S. Consumer Services ETF (IYC) and Consumer Staples Select Sector SPDR Fund XLP should remain steady.
Housing
The Wall Street Journal article said that Biden would offer targeted tax credits for middle-income households, including proposals aimed at boosting retirement savings, child care and first-time home purchases. This should be beneficial for homebuilding ETFs like SPDR S&P Homebuilders ETF XHB. A low-rate environment is another boost for the housing stocks.
Manufacturing & Infrastructure
While tax hike is a negative for Wall Street, Biden’s push for tax incentives will encourage domestic manufacturing. Biden proposed a $1.3-trillion infrastructure overhaul last year. The Democratic presidential candidate’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access, and updating schools among other works.
The proposals should boost ETFs like iShares U.S. Infrastructure ETF (IFRA) and Invesco Dynamic Building & Construction ETF (PKB) and First Trust RBA American Industrial Renaissance ETF AIRR.
Technology
Biden’s foreign policy appears to be more liberal than Trump’s. So, pro-immigrant hiring policies (technology companies are highly immigrant-reliant) and moderate antitrust scrutiny would likely boost Amazon.com Inc. and other Big Tech companies in the Biden era, per many policy analysts, as quoted on S&P Global. This along with better relations with China will provide another tailwind to tech shares.
Amazon has a solid exposure to funds like Fidelity MSCI Consumer Discretionary Index ETF (FDIS) while tech funds like Technology Select Sector SPDR Fund XLK are heavy on Microsoft and Apple.
Losing Sectors
Banks
Banks were a key beneficiary in the lower-tax environment. Big U.S. banks have enjoyed an average 13% increase to earnings per share from the lower rate, per Goldman Sachs. Banks also enjoyed easing of regulatory stringencies in recent years.
However, under Biden's plan of tax hike, the 10 largest U.S. banks may see their combined annual net income decline by more than $7 billion, according to an S&P Global Market Intelligence analysis. Moreover, the tax hike may also cause a volatile market and a decline in long-term interest rates due to safe-haven trades. This would further shrink net margins and lower banks’ profits. SPDR S&P Regional Banking ETF (KRE) should be watched closely in the coming months.
Healthcare
Healthcare services was also one of the most-taxed industries before. According to MUFG Securities, tax reform probably has boosted managed care companies’ earnings by 30%. In the absence of this, SPDR S&P Health Care Services ETF XHS could lose ahead.
Reuters noted that domestically geared healthcare companies that were also winners of the tax reform may now feel the pressure. Invesco S&P SmallCap Health Care Portfolio (PSCH) could thus be a loser. Moreover, pharma stocks have long been accused of price-gouging by some democrat leaders.
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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
SPDR SP Homebuilders ETF (XHB): ETF Research Reports
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
SPDR SP Health Care Services ETF (XHS): ETF Research Reports
First Trust RBA American Industrial Renaissance ETF (AIRR): ETF Research Reports
SPDR SP Regional Banking ETF (KRE): ETF Research Reports
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