Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 27 Nov 2020, 6:40 AM

 

Wall Street Breakfast: Election Edition

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Nearly 99M early votes have been cast in person or by mail as of Monday night, about 72.3% of the entire turnout in 2016 and representing about 40% of all Americans who can participate in the U.S. election. The rest of the population will decide today on whether Republican President Donald Trump or Democratic rival Joe Biden will control the White House for the next four years. Trump is still close enough in swing states like Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin to piece together the 270 Electoral College votes needed to win the presidency (a feat he accomplished in 2016 despite losing the national popular vote), while Democrats are also pushing to recapture a Senate majority and are expected to retain their control of the House of Representatives.

Rally in the works

U.S. equity index futures are continuing their strong start to the week in the wake of last week's selloff, climbing another 1.4% overnight following a green session on Monday. "Anything other than a contested election, a decisive victory in particular, would be good news for stocks," said Kristina Hooper, chief global market strategist at Invesco. Since the 2016 election of Trump, the U.S. stock market has gained about 53%, and rebounded from the coronavirus-induced selloff to hit fresh all-time highs in September. With traders still mindful of the violent price swings seen after the election in 2016, check out our sector-by-sector coverage below of what may lie ahead for the markets.

Energy & Infrastructure

Joe Biden has promised to invest $2T in clean energy infrastructure, and if he were to win, it could give a boost to renewables and sustainable stocks, as well as the solar industry. Biden has additionally pledged to a vehicle charging network rollout, and while he may be the best outcome for EVs, President Trump said during the first presidential debate that he is "all in" when it comes to electric cars. During Trump's administration, the U.S. also became the world's largest energy producer, though his heavy infrastructure plan to repair and rebuild highways, bridges and water systems made little headway. Members of Congress have not been able to reach a consensus on how to pay for it, but it could take on greater importance during a second term. Related: TSLA, FSLR, VMC, CAT

Banks

Expect big bank capital requirements to tighten if Joe Biden wins the presidency, but don't expect a radical departure from the existing regime, writes Jaret Selberg of Cowen Washington Research Group. Changes, though, wouldn't be immediate as the terms of Fed Vice Chairman Randal Quarles (October 2021) and Chairman Jerome Powell (February 2022) would have to expire before such proposals could advance. Some analysts still see a silver lining for banks, because they could benefit from a hefty stimulus package and potentially steeper bond yields. A second Trump term "could also result in "added tailwinds from a continued 'light touch' on regulation and a push to reduce taxes," according to Ameriprise Financial. Related: BAC, C, GS, JPM, MS, WFC

Stimulus & Taxes

A so-called "Blue Wave' is the clearest path to a jumbo coronavirus aid package that would help reinvigorate the economy, after talks repeatedly broke down over the last few months. Such a bill may benefit small-cap shares and lead to a long-awaited rotation into value stocks (hasn't that been happening already?). Looking beyond a near-term boost, a Democratic sweep could also pose some worries for investors, such as the prospect of a potential corporate tax rate hike to 28% from 21% - which could weigh on company profits - as well as a tougher regulatory environment.

Defense

While the consensus thinking is a Democratic win would mean less defense spending, Biden has said he may increase spending in areas that the Defense Department "desperately needs to innovate" such as "unmanned capacity, cyber and IT." "I've met with a number of my advisors and some have suggested in certain areas the budget is going to have to be increased," he told military newspaper Stars and Stripes in September. Defense stocks have climbed sharply overall under President Trump, even with the COVID-related selloff hitting the sector, and generally tend to do well under Republican administrations. Shortly after winning the election in 2016, Trump added more than $200B to the defense budget for fiscal years 2017 through 2019, and in December of 2019, he signed a $738B defense bill for fiscal 2020. Related: LMT, NOC, GD, BA, RTX

Trade

A Biden administration is predicted to ratchet down tensions in the U.S.-China trade war, though that could be negative for the dollar if the calmer tone would mean more American imports from overseas. He says the best way to confront China on IP and technology transfers is by forming a coalition with allies, not through unilateral tariffs, and wants to juice U.S. manufacturing by directing $400B of federal government purchases to domestic firms (like buying pandemic supplies) over a four-year term. Trump, on the other hand, views the signing of two major trade deals - USMCA and Phase 1 of a China agreement - as signature achievements of his presidency.

Healthcare & Pharma

Eyes will also be on healthcare spending, which totals 17% of the U.S. economy and far more than any other industrialized country. Biden wants to expand the Affordable Care Act, a move that would increase federal healthcare spending by $2T or more over 10 years, while Trump wants to end it altogether, and replace it with something better. Both political parties have also sounded off against high prescription drug prices, while BofA has shaken out election scenario winners in hospitals and managed care.

Big Tech

Both parties will likely continue regulatory pressure on tech companies with antitrust investigations and breakup threats, as well as a possible repeal Section 230 of the Communications Decency Act. Revoking the rule would create legal headaches for social media platforms, whose business models rely heavily on user-generated content. According to Allianz, Democrats are "more likely to pursue changes in 'Big Tech'," while Deutsche Bank International Private Bank said the sector was "one of the biggest benefactors" of Trump's tax reform. Related: GOOG, GOOGL, TWTR, FB

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