Election Trading and Investment Opportunities

Shah Gilani|August 17, 2020

The upcoming election is going to change all our lives, not just because it will determine who the President is going to be, or how divided or united Congress is going to be, moreover because whatever the outcome is, there are going to be huge winners and losers in the economy and the stock market.

And being on the right side of all the opportunities ahead of us will truly be life changing.

While it matters who wins and who loses, to a lot of Americans, what matters to me is what’s going to change and how to position ourselves as traders and investors to make money from what will and won’t change, depending on the outcome of the election.

Here’s what the outcomes could be and how markets and sectors will move initially and longer-term.

If Biden Wins the Presidency…

Right now, based on most polls, for whatever they’re worth, Joe Biden is likely going to be the next President of the United States.

If Biden wins, what’s going to matter even more is the make-up of the Senate and House of Representatives.

In the unlikely event Republicans win control of both the House and Senate, President Biden would have a hard time advancing his platform positions and agenda.

If Congress remains essentially divided, with the House remaining in Democrat hands and the Senate remaining in Republican hands, the most likely outcome according to some Republican polls, Biden will have a difficult, though far from impossible fight enacting his policy positions.

But polls being what they are, according to Democrat sponsored polling, Democrats appear poised to potentially control both houses of Congress.

A Biden administration backed by a Democrat controlled Congress would likely lead to higher taxes across the board, and more regulatory scrutiny for financial, energy, and tech stocks.

Given those prospects, investors would initially take profits in most of the stocks that led the market higher since Trump’s election in 2016, including the mega-cap tech darlings, for sure.

That profit-taking in turn, because the FAANG stocks and Microsoft account for 25% of the S&P 500, would cause across the board selling as the weight of the big caps falling would tank the benchmark index and trigger potential waves of stop-loss orders mostly placed by retail traders.

It’s not a guarantee, but a selloff of equal but reciprocal proportion to the rally stocks enjoyed with Trump’s surprise election, is a distinct possibility.

Selling of any magnitude would probably be an excellent “buy the dip” opportunity, as cooler heads prevail, and the make-up of Congress gets more closely weighted.

Longer-term, given Biden’s platform to date, the economy would turn “greener” and so-called green stocks would rally. Specifically, with climate change a top Biden priority, clean energy stocks like solar stocks and electric vehicle makers, and battery manufacturers, and associated ETFs that hold all kinds of clean and green stocks, would all be winners.

Infrastructure spending, another Biden call, would, in time, power infrastructure-sector stocks. And healthcare stocks, especially managed-care companies, would rise given Biden’s expressed intention to further provisions of the Affordable Care Act.

The downside of a Biden win and a Democrat led Congress would be higher taxes, especially corporate taxes, taxes on the wealthy, taxes on foreign investments and foreign derived profits, and higher taxes on inherited assets and wealth.

Of course, the economy is the biggest loser when taxes go up across the board.

“Biden’s tax plan would slow economic growth because of the way the plan raises revenue-for example, the increase in the corporate income tax rate and the minimum book tax raise the cost of making new investments on the margin, which tends to reduce long-run economic growth,” says Garrett Watson, senior policy analyst at the Tax Foundation. “The challenge is finding ways to raise revenue that minimize the impact on economic growth, as some forms of taxation (land taxes being a well-known example) have less of an effect on economic growth.”

The point is, while there will be lots of upside winners in the stock market if Biden and the Dems win, there would be plenty of losers too.

If Trump is Reelected…

In the event Donald Trump wins re-election, traders and investors already have something of a roadmap. But, here again, the path forward for the economy, for markets, for specific sectors and stocks would be more heavily weighed against Congressional make-up.

A Trump win accompanied by a divided Congress, as we have today, would yield “more of the same” for investors, meaning equity markets would continue higher.

If The Donald wins and Democrats control Congress, my bet would be on volatility, and a lot of it.

However, if we get four more years of President Trump and he has a decided majority in both the Senate and House, expect equities to soar immediately and continue higher for probably another four years.

Not that there wouldn’t be selloffs and corrections ahead, they’re coming one way or another, but Trump’s pro-business, lower tax regime and continued deregulatory push would benefit: financials, energy companies, insurers, auto manufacturers, farmers and domestic industrial manufacturers, to name a few.

Stay tuned, because I’ve already researched and made up lists of stocks that will win and lose based on each possible election outcome, and I’m going to start naming names soon.

Later this week, I’ll be covering a Biden win, what to buy, what to sell, what to avoid. I’ll be covering the same stuff on Friday for a Trump win.

Either way, it’s time to prepare, and I’ve got all details to keep your portfolio safe, no matter how this election shakes out, just check back on Wednesday.

Until then,

Shah Gilani