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In this “biden-light” world, a Republican Senate could block anything that appears too radical on the left, says Daniel Alpert of investment bank Westwood Capital. “This is market heaven.”
Unrest and negative consequences such as an expected significantly smaller economic stimulus package and the increasingly widespread corona pandemic are currently still ignored. “But reality may soon reach the markets again,” Alpert believes.
Galler therefore warns against overestimating the price of fireworks on the large market and the influence of the elections. Jörg Zeuner, chief economist of the Union’s investment fund house, is also quite skeptical, because: “The bottom line is that the potential for economic growth is unlikely to be further strengthened given the political mix.”
However, Stefan Kreuzkamp, chief investment strategist at DWS, still sees “many question marks” about what President Biden’s future policy will ultimately look like, especially since the balance of power between the wings of the government and the legislature are not yet clear. The final majorities in the Senate could not be decided until January in a ballot in the state of Georgia. Ultimately, a growing economy where companies can increase their profits are critical to direction on the stock markets.
Four industries are expected to benefit from a Biden president
However, strategists identify four industries that should benefit from a Biden president in a divided congress. On the one hand, this includes technology, health and finance. “It helps if, in view of regulation, the status quo ultimately remains, even under a new government,” says Galler. Then there is the green energy area. Here the president could set the course that would give the industry a permanent boost.
Technology
Tech stocks have been driving the stock exchanges for years, but have come under pressure as the election approaches and Biden has advanced in the polls, but are now rising significantly again. Democrats and Republicans agree in their criticisms of the power of big tech companies, but: “In the medium term, investors no longer expect difficult regulatory steps,” says Union Investment’s Zeuner.
Tech giants Apple, Amazon, Facebook, Microsoft and Google should also benefit from the fact that Biden “is unlikely to get a majority” for its planned tax increases, as Zeuner says. Mona Mahajan, investment strategist at wealth manager Allianz Global Investors (AllianzGI) is a little more skeptical. You can imagine a Biden administration taking up some of Trump’s tax cuts in the medium term. However, it doesn’t even assume that tax increases are high on President Biden’s list of priorities.
However, AllianzGI’s tech stocks are generally still a favorite. After all, the trend towards digitization is unbroken, especially large tech companies are profitable and an indispensable part of the economy. This is why tech stocks are highly valued by many investors and there is no end to this trend yet.
Independent capital market advisor Ed Yardeni points out that tech stocks lost nearly 13% after a strong rally in September and October. “This eliminated the bubbles that had formed here since the crown crisis began,” he says. Therefore, it is now easier for investors to come back here.
Fitness equipment manufacturer Peloton also has analysts on its side. The paper earned about 350 percent this year. Recently, bottlenecks in deliveries have weighed on prices. But Edward Yruma of Key Banc Capital Markets assumes these will soon be resolved and that Peloton will continue to benefit from the fact that people in the crown crisis prefer to work out at home rather than go to the gym. “So far, the competitors have failed to pose a serious threat to Peloton.”
Health
In the healthcare industry in Corona’s day, the big pharmaceutical and biotech companies are the winners. Before the election, the shares of pharmaceutical companies were under pressure. Biden had finally announced price restrictions for the pharmaceutical sector in the medium term. According to Zeuner, pharmaceutical and healthcare stocks should also benefit from the hope that regulation is not as tight.
Hospital workers, on the other hand, have so far suffered from the fact that many treatments that had nothing to do with Covid-19 have been canceled, which is why the health sector on Wall Street as a whole has performed far worse than others. industries. However, Biden wants to expand healthcare again, which should also benefit hospital workers. Whether Biden can reintroduce “Obamacare” is uncertain in a divided Congress, but at least something could improve health care.
Furthermore, as the population ages, the pharmaceutical industry is benefiting from a structural growth trend, similar to that of technology stocks. There are other growth fantasies as well. Yana Barton, portfolio manager at Eaton Vance, sees them in “trends towards more biopharma and genetic sequencing”.
Green energy
Climate is at the top of Joe Biden’s list of priorities. Among other things, it plans to invest $ 2 trillion in renewable energy and climate protection over the next four years, some of which will be funded through tax increases.
In the case of a divided balance of power, it is unclear how much of it he can implement as president. But: “In everything to do with renewable energy, Biden can hit the stakes as president and turn the discussion around that will help the industry and its companies,” says Galler of JP Morgan Asset Management.
Many experts believe that the trend towards green energy will continue regardless of political developments. After all, the western United States was hit harder than ever by devastating bushfires this summer. Many companies have also announced that they will cut their emissions. Banks want to urge their customers to become more climate-friendly.
The global clean energy companies included in the S&P index have already performed very well in recent weeks. The ETF had already recovered on Friday after a mid-week slump. Analysts also continue to refer to biodiesel maker Renewable Energy Group, solar installer Sunrun, and electric car makers like Tesla.
Finances
According to AllianzGI strategist Majahn, Biden could reverse the loose deregulation under Trump. But “difficult regulatory steps” should not be expected, stresses Union Investment’s Zeuner. The economist believes that the shares of financial companies should also benefit. Whether this will help banks in the long run is debatable. The big American houses this year increased their profits, but especially in the trading of securities. Low interest rates are likely to have a long-lasting negative impact on bank margins. Furthermore, concerns about loan defaults are mounting.
Bottom line: Politics can inspire stocks, but it’s not the only reason for the permanent rise in stock prices.
A policy change in the White House is also an important issue for the stock exchanges, but betting only on “Biden shares” is risky. On the one hand, it may take up to mid-December to determine the winner of the final US election. There is also a great risk that the broad rally on Wall Street will reverse again, at least for a short time. Prior to the election, strategists had predicted price losses of up to 20 percent in the S&P 500 in a long standoff over the White House race. Even the individual sectors could not avoid a similar slide.
In principle, one should ask “whether political preferences are also reflected in better earnings prospects,” warns DWS’s Kreuzkamp. Because “when it comes to choosing a sector, structurally positive long-term trends for sectors and, above all, for individual companies are fundamental,” underlines Galler of JP Morgan.
And they could change quickly. An example of this: After Trump’s election four years ago, the shares of large oil and fracking producers, banks and arms companies were considered the big favorites of the sector. In the first few weeks after the election, they grew more clearly than the market as a whole, but over a four-year period they performed worse than the broader market.
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