In a tweet Monday, President Donald Trump warned that if voters wanted their 401k and stocks to “disintegrate and disappear,” they should cast their ballots for presumptive Democratic presidential nominee Joe Biden.
Biden’s lead in the polls over Trump has been widening over the past month, with the former vice president holding a roughly 10 point lead over the president according to RealClearPolitics’ average of eight major polls.
“If the election were held today, we believe Vice President Joe Biden would win as part of a Democratic sweep,” said Sara Bianchi, head of U.S. public policy and political strategy research at Evercore ISI, in a note to clients as the coronavirus pandemic and recent social justice uprising reframe the election.
Trump isn’t alone in arguing that some of the former Vice President’s policy proposals would be potential negatives for stocks, with several analysts and investors saying the same. However, in a note out the week, JPMorgan strategists countered that a Biden win in November would actually be “neutral to a slight positive” for equities.
The strategists, led by Dubravko Lakos-Bujas, wrote that Biden would partially reverse the Republican corporate tax cut of 2017, increase the federal minimum wage, ease tariffs on China, and increase infrastructure spending, though they added that these policy priorities were set-out before the coronavirus and are likely to shift should the Democrat win the election.
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over polices that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome,” Lakos-Bujas wrote.
The JPMorgan strategists warned that a higher corporate tax rate would bring an earnings headwind of around $9 for S&P 500 earnings per share. However, a corporate tax hike would likely be lower than the 28% Biden has floated and would be offset by the softening of tariffs, infrastructure spending, and higher wages – all net positives for S&P 500 earnings.
And when it comes to a possible infrastructure bill, a Wolfe Research team led by Chris Senyek, said that a Democratic sweep could result in an infrastructure package of at least $1.5 trillion that would have an emphasis on clean energy and other environmentally-friendly initiatives.
Senyek also argues that Democrats would be much more positive on trade policy than the Trump administration has been. Given this, Senyek said U.S. companies paying heavy tariffs and U.S. exporters with significant exposure to China would be big winners.
“Further, a more diplomatic approach to domestic/foreign policy will likely result in lower volatility and risk premia,” the JPMorgan strategists added.
Should Democrats sweep the election in November, JPMorgan selected a basket of stocks that should outperform under a Democratic agenda. Names in the basket include electric vehicle makers Tesla (NASDAQ: TSLA) and Nikola (NASDAQ: NKLA), healthcare stocks Johnson & Johnson (NYSE: JNJ) and CVS (NYSE: CVS), and names including Procter & Gamble (NYSE: PG), Boeing (NYSE: BA), DuPont (NYSE: DD), and Nike (NYSE: NKE) that will benefit from a tariff de-escalation.
Lakos-Bujas added that a higher minimum wage would have a positive impact on consumer spending, and would be a positive for companies despite higher costs and some employment losses.
“Distinguishing winners and losers will depend on businesses who will see incremental demand due to rising disposable income, lower labor intensity (revenue/employees) and higher margins,” the strategists wrote.
Image courtesy of Gage Skidmore.