A “blue wave” in November, with Joe Biden winning the White House and Democrats taking over both the House and Senate, could mean big trouble for a handful of industries, according to numerous investors and analysts.
The steady growth in the stock market would be in jeopardy, says Greg Valliere, the chief US policy strategies at AFG Investments. He warns that a Biden victory is “something the markets have to be concerned about.”
Corporations have seen increased profits and higher share prices. This phenomenon has happened since the Trump administrations cut the corporate tax rate from one of the highest in the world at 35%. It’s now down to a more reasonable 21%. Biden has already made it clear he intends on raising that tax rate to 28%. This increased tax burden would result in lower earnings for most businesses, hurting their share price.
Investors and Economists React
David Rosenberg, chief economist at Toronto-based Rosenberg Research, says that based on today’s tax rates and price-to-earnings ratios, he expects the S&P 500 could drop 10.5% due to a Biden victory.
Agreeing with Rosenberg is Goldman Sachs U.S. Equity Strategist David Kostin. He says the Biden tax hikes are an “unwelcome event” for the markets and are a “larger risk to earnings and consequently to equity prices” than COVID-19.
Valliere says a handful of industries are also at risk from the “blue wave.”
“You’d have to get a little more cautious about defense stocks, health stocks, fossil fuel stocks, tech stocks, financial-services stocks, all of which would be vulnerable if Biden wins and takes the House and Senate with him,” Valliere said.
Military Budget; Healthcare and Energy Industries
Biden has come out in favor of increasing the military’s budget. However, Trump is widely viewed as willing to spend more on America’s military. He has increased the budget by nearly 20% since taking over the Oval Office.
Healthcare stocks could come under pressure as the Biden administration looks to reduce drug costs. The same can happen if it passes a Medicare-for-all package if Democrats gain control of both the House and Senate.
The energy sector is already under tremendous financial strain due to the coronavirus pandemic. It could also face insurmountable headwinds from a Biden administration that wants to curb fossil fuel use in favor of carbon-free emissions.
Democrats have also expressed a desire to end the granting of new oil and gas leases on federal land and offshore drilling.
High-flying tech stocks have led the explosive growth in the stock market for the better part of two decades. It could come under heavy pressure from Democratic lawmakers.
Sen. Elizabeth Warren, D-Mass, who is reportedly on the shortlist to be Biden’s vice president or Treasury Secretary, has been a vocal proponent of breaking up big tech firms including Amazon and Facebook. Warren has also expressed a desire to implement stricter regulation on the banking sector It includes tighter capital and liquidity requirements. It also involves the creation of a 21st-century Glass-Steagall Act that separates investment and consumer banks.
If you have investments in any of these sectors, you should keep a close eye on the election. Hopefully, we will have nothing to worry about, but it never hurts to be prepared.