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Biden Versus Trump: Impact on ETF Investing World

The prime election day is breathing down one’s neck and the investing world is busy assessing the impact of a Democrat or Republican win. Polls are seemingly not favorable for President Trump at the current level if we go by a recent CNN report, which says that Republican Trump is down by about 10 points to Democratic presidential nominee Joe Biden nationally and in almost all the swing states.

However, Nov 3 is still about three weeks away and sentiments may change anytime. “With a little less than a month to go, the national polling aggregate has differed from the actual result by an average of a little more than four points since 1936,” the CNN article noted. One should not forget that Trump won the election in 2016 despite trailing the then-Democratic candidate Clinton in many polls.

In such a scenario, an investing case should be worked out for the both the scenario – Biden or Trump win.

Biden Favors Tax Hike & Trump Doesn’t

Biden’s winning means the partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%. Biden is also proposing to levy a minimum tax rate of 15% — a potentially damaging outcome for some major companies which pay little in taxes (read: All About Biden's Tax Plan & Its Impact on the ETF World). 

Though like many analysts, we believe that the tailwind from the tax cut is now “behind us,” corporate earnings are likely to soar higher amid a low-tax environment. iShares Core S&P Total U.S. Stock Market ETF ITOT and SPDR S&P 500 ETF Trust SPY should see easy gains if Trump wins.

Banks: Trump-Friendly

Banks have been key beneficiaries 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.

Moreover, lower tax rates would mean risk-on sentiments in the market, which would boost long-term treasury yields. This would further boost net interest margins and increase banks’ profits. SPDR S&P Regional Banking ETF (KREshould get some respite amid coronavirus-induced troubles if Trump wins.

Alternative Energy: Biden-Friendly

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.

Fossil Fuels: Trump-Friendly

Taking a completely different stance from Biden, Trump is in favor of pushing for more fossil fuel generation, be it from crude oil, natural gas or coal. This in turn may benefit Big oil companies like Exxon Mobil Corp. XOM and funds like VanEck Vectors Unconventional Oil & Gas ETF FRAK.

Infrastructure: Both Biden & Trump Friendly

Joe Biden proposed a $1.3 trillion infrastructure overhaul last year. The Democratic presidential candidate’s campaign eyes investing in restoring highways, roads and bridges, while trying to boost adoption of electric vehicles and trains.

Meanwhile, the Trump administration is reportedly weighing a nearly $1 trillion infrastructure plan as part of its efforts to bolster the American economy. A preliminary version being prepared by the Department of Transportation would take care of most of the funding for projects such as roads and bridges, and would also keep money for 5G wireless infrastructure and rural broadband.

Hence, iShares U.S. Infrastructure ETF IFRA could gain if there is a Trump win. Defiance Next Gen Connectivity ETF FIVG should also gain.

Small Caps: Both Trump & Biden Friendly

Who doesn’t know about President Trump’s“America First” slogan and thesmall-cap surge in the Trump era? His intention to bring back foreign jobs to America boosted small-cap U.S. stocks in previous years. This is because small-cap stocks have greater domestic exposure and are unraveled by volatilities in foreign markets. Increased activities in the domestic economy make the group a winner. As a result, the initial phase of the Trump rally led small-cap stocks to fare better than the S&P 500, the Nasdaq and the Dow Jones.

Meanwhile, Democratic candidate Joe Biden is proposing comprehensive new uses of the federal government’s regulatory and spending power to bolster U.S. manufacturing and technology firms. Biden is backing a $700 billion-plus “Buy American” agenda. Vanguard Small-Cap Growth Index Fund ETF Shares VBK is expected to gain (read: Trump or Biden, Small-Cap Stocks & ETFs to Gain).

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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
SPDR SP 500 ETF (SPY): ETF Research Reports
 
iShares Global Clean Energy ETF (ICLN): ETF Research Reports
 
Invesco Solar ETF (TAN): ETF Research Reports
 
VanEck Vectors Unconventional Oil Gas ETF (FRAK): ETF Research Reports
 
iShares Core SP Total U.S. Stock Market ETF (ITOT): ETF Research Reports
 
SPDR SP Regional Banking ETF (KRE): ETF Research Reports
 
Vanguard SmallCap Growth ETF (VBK): ETF Research Reports
 
iShares U.S. Infrastructure ETF (IFRA): ETF Research Reports
 
Defiance Next Gen Connectivity ETF (FIVG): ETF Research Reports
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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