Key ETF Areas to Track as Biden Victory Looks Quite Likely

Apart from COVID-19, the presidential election is a pretty hot topic now, especially since the event is just a little more than two months away. Chances are rising that the blue wave of Democrats will take control over the House and Senate in November. According to a poll, Democratic presidential candidate Joe Biden now has a 71% chance of winning the White House. Biden is nine points ahead of President Donald Trump, according to the latest survey by The Wall Street Journal and NBC.

Against this backdrop, below we highlight some agenda of Biden that would make/break these ETF investing areas.

Biden Favors Tax Hike

Unlike President Trump, Biden seeks a tax hike. President Trump’s tax lay lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation revealed that Biden’s plan is to hike the corporate tax rate to 28%, though not as high as 35% where it was before the Trump era.

Biden is also proposing to levy a minimum tax rate of 15%, a potentially damaging outcome for some major companies that pay little in taxes. Biden's tax plan points at revenues needed to pay down the huge debt incurred to fight the recession. He has proposed setting the long-term capital gains tax for those earning more than $1 million at the same level as income tax. That would cause a shoot-up for top earners from 20% to 39.6%.

If there is a tax hike, some sectors that are enjoying a low tax rate environment materially (like banks, retail, domestically geared healthcare companies) would be under pressure. SPDR S&P Regional Banking ETF (KRE), Invesco S&P SmallCap Health Care Portfolio (PSCH) and VanEck Vectors Retail ETF (RTH) may face problems.

Infrastructure ETFs to Soar

Joe Biden proposed a $1.3 trillion infrastructure overhaul last year. Though he said he will fund the plan through tax increases on the wealthy and corporations, we see moderate increases in both tax rates as well as infrastructure activities under Biden’s rule (read: "Build Back Better" Plan Of Biden To Boost These ETFs).

The Democratic presidential candidate’s campaign eyes investing in restoring highways, roads and bridges, while trying to boost adoption of electric vehicles and trains. His plan also calls for changing water pipes, building out rural broadband access and updating schools, among other measures.

iShares U.S. Infrastructure ETF IFRA, Invesco Dynamic Building & Construction ETF (PKB), Global X U.S. Infrastructure Development ETF (PAVE) should gain ahead.

Green Energy in Sweet Spot

Like many other democratic leaders, Biden is also a proponent of clean energy investing. 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 by 2035 and having net zero emission by 2050.

Tax incentives for renewable energy projects such as wind and solar are due to end in 2020. Biden has pledged to extend these and support the pickup of projects like energy-efficient buildings.Biden plans to upgrade 3 million vehicles into the electric form that the government regularly purchases. First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN should gain from this.

Obama-era Affordable Care Act to be Brought Back?

Biden has vowed to bring back healthcare reforms that would ensure more people get insurance coverage under the Obama-era Affordable Care Act, which the Trump administration has reversed. Some pharma companies that are guilty of price gouging issue and some health insurance providers like United Healthcare may not see it profitable. So, pharma ETF like SPDR S&P Pharmaceuticals (XPH) and health insurers fund likeiShares U.S. Healthcare Providers ETF IHF may be benefitted.

Is the Financial Sector in Trouble?

The Trump administration has eased crisis-era financial services’ sector policy. In the past, both Biden and his running mate, Kamala Harris, supported the idea of a financial transaction tax, as quoted on Financial Times. SPDR S&P Regional Banking ETF (KRE) may be under pressure.

Amazon ETFs May Face Pressure

Per Financial Times, “Biden has called for Amazon AMZN to pay more tax, and for the repeal of Section 230, which guarantees social media companies immunity from libel cases based on content uploaded by users. But so far he has said little about privacy or antitrust, the two biggest regulatory challenges facing the industry.” Amazon-heavy ETF RTH may see some selloff.

Immigration Rule to be Eased a Bit

Financial Times noted that Biden has pledged to take back Trump’s controversial immigration policies

through a number of executive actions. They include raising the annual cap on refugees to 125,000 from the 18,000-ceiling set by Trump. The move could go in favor of tech ETFs that depend a lot on outsourcing and immigration.

Little Softer on China

Like Trump, Biden intends to take “aggressive trade enforcement actions” against China or anyone he believes is guilty of currency manipulation or other anti-competitive trade practices. But he has said that “he will enlist the support of US allies to do so on a multilateral level, unlike Trump”, as quoted on Financial Times. So, market disruptions on the trade front with China are likely. Growth ETFs like Vanguard Growth ETF (VUG) should soar ahead.

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iShares U.S. Healthcare Providers ETF (IHF): ETF Research Reports
First Trust NASDAQ Clean Edge Green Energy ETF (QCLN): ETF Research Reports
Vanguard Growth ETF (VUG): ETF Research Reports
Invesco SP SmallCap Health Care ETF (PSCH): ETF Research Reports
SPDR SP Regional Banking ETF (KRE): ETF Research Reports
iShares U.S. Infrastructure ETF (IFRA): ETF Research Reports
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