Stocks and Sectors Poised for Gains Based on Presidential Election Outcomes

While the outcome of a presidential election may not directly impact stock market performance, the policy stances of the winner can significantly influence specific sectors and industries. In today’s article, we’ll explore which sectors might thrive or face difficulties depending on the winner of November’s presidential race.

In the aggregate, the market will be looking for a clear, uncontested result in order to rally. As long as everyone can agree on who the real winner is, potential volatility will be priced out of this event, leading to a boost for equities. If, on the other hand, the outcome will be challenged by either party and serious allegations of voter fraud will surface, markets might stumble.

That being said, there is one sector that should benefit, no matter who will sit in the White House.

Defense Industry: Resilient Regardless of Election Outcome

The defense sector is a standout winner in nearly any election. Consistent military spending ensures that companies such as Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), and Huntington Ingalls Industries (HII) continue to thrive. Neither Harris, nor Trump have suggested cuts to defense, aligning with a bipartisan consensus on national security, which should keep these stocks stable or growing.

Housing and Infrastructure: Residential Construction on the Rise

The Biden administration’s commitment to affordable housing initiatives is expected to persist, with Harris likely to follow suit. Lennar (LEN), NVR (NVR), D.R. Horton (DHI), Louisiana-Pacific (LPX), and Vulcan Materials (VMC) could see increased demand for residential construction, especially in response to federal programs aimed at expanding affordable housing access. Harris's proposal includes tax breaks aimed at building 3 million new housing units over four years and providing up to $25,000 in down-payment aid for first-time homebuyers. This initiative could significantly boost housing stocks by increasing demand and construction activities. With the push for more sustainable building practices and infrastructure investment, these companies are well-positioned for growth under a Harris administration.

However, if proposals for rent controls become implemented, residential developers might hit the brakes on new projects. After all, if the government can dictate a company’s pricing policy, the incentive to invest in the real-estate market vanishes.

Green Energy and Electric Vehicles

Kamala Harris is poised to champion green energy policies, continuing the push for electric vehicle (EV) adoption and charging infrastructure expansion initiated under the Biden administration. ChargePoint Holdings (CHPT) is a potential standout. ChargePoint has already benefited from key partnerships, such as with Daimler Buses, and has over 360,000 charging points globally. Federal investments in clean energy and EV infrastructure will further solidify its growth trajectory.

Similarly, renewable energy companies such as NextEra Energy (NEE), First Solar (FSLR), and Enphase Energy (ENPH) could gain from increased government spending and subsidies in green technologies. Harris’s focus on climate change would likely support a boom in solar, wind, and other sustainable energy projects, accelerating the shift away from traditional fossil fuels.

Healthcare: A Focus on Access and Reform

The healthcare sector stands to benefit from Harris’s continued emphasis on reform. Democrats typically focus on expanding healthcare access and affordability, which could benefit companies like Teladoc Health (TDOC) and UnitedHealth Group (UNH). Increased government involvement and regulation should favor companies offering innovative telemedicine and digital health solutions as part of broader efforts to make healthcare more accessible.

Proposals to cap prescription drug costs and eliminate medical debt could reshape the healthcare sector. While this might benefit the consumer, the pharmaceutical sector might face negative outcomes due to potential price controls. Mid-caps in this sector like Zoetis (ZTS), Jazz Pharmaceuticals (JAZZ) and Vertex Pharmaceuticals (VRTX) might face headwinds.

Sectors That Could Face Challenges Under a Kamala Harris presidency

Traditional Energy

The oil and gas industry may face challenges under a Harris administration, as her policies will likely focus on curbing fossil fuel use. Companies in this sector, particularly those with a significant reliance on oil and coal, could experience regulatory pressures and reduced demand. The oil majors Exxon Mobil (XOM), Chevron (CVX) and Phillips 66 (PSX) are vulnerable in this scenario.

Financial Sector

Increased regulatory scrutiny on banks and financial institutions is a hallmark of Democratic policies. Harris is likely to support such measures, which could affect the profitability of financial stocks in the short term. Major constituents of the Financials ETF (XLF) like JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C) could stand to lose. It’s hard to see an advantage for regional banks under a Kamala Harris presidency as well.

Conclusion

A Kamala Harris presidency, while bringing potential regulatory challenges to certain sectors, could be a boon for green energy, healthcare, and infrastructure-related industries. Proposals like a $6,000 child tax credit for families with newborns could stimulate consumer spending, indirectly benefiting various sectors by boosting economic activity. Sectors reliant on immigrant labor could see an increase in the workforce, especially in agriculture, construction, and the service industries.

Some investors believe the stability and predictability of a Harris administration could be a positive factor in contrast to the more chaotic approach of Donald Trump. Essentially, a Kamala win means “more of the same”, and in the context of the stock market, that wasn’t necessarily bad (the S&P 500 is up ~56% since November 2020). However, the initial market response to a Harris win might be weak due to concerns about higher corporate taxes, increased regulations and the prospect of price controls being introduced across certain industries.

Cryptocurrencies: A Surge in Digital Assets

Trump has explicitly shifted towards a pro-crypto stance. He has stated intentions make America "the world capital for crypto and Bitcoin." This includes promises to support the right to self-custody for crypto holders, indicating a policy direction that favors less regulation and more freedom for crypto operations within the U.S.

Bitcoin and Bitcoin-related stocks like Riot Blockchain (RIOT), MicroStrategy (MSTR), and Coinbase (COIN) could be major beneficiaries. Trump has previously expressed skepticism about central banks and the Federal Reserve's monetary policy, and his administration's preference for deregulation could create a more favorable environment for crypto innovation.

Trump has explicitly mentioned opposition to central bank digital currencies (CBDCs), which aligns with a broader skepticism government-controlled digital currencies that could compete with decentralized cryptocurrencies like Bitcoin. Ether and other major cryptocurrencies should also benefit.

The Banking Sector: Less Regulation, More Freedom

During his first term, Trump was widely seen as supportive of the banking industry, advocating for deregulation and a reduction in oversight. Financial giants such as JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS) could benefit from a similar approach if Trump reclaims the White House.

His administration may push for looser regulations, which would enhance profit margins and lead to greater opportunities for mergers and acquisitions. Additionally, with a stronger U.S. dollar, financial institutions could find themselves well-positioned to acquire assets at home and abroad, further boosting their balance sheets.

The Energy Sector: A Revival of Fossil Fuels

Energy companies, particularly those in the fossil fuel sector, are expected to experience a resurgence under a Trump presidency. Exxon Mobil (XOM), for example, could benefit from Trump's push to reverse Biden’s ban on new liquefied natural gas (LNG) projects. Trump has consistently advocated for energy independence and expanding fossil fuel production, including oil and natural gas exploration.

His administration is likely to roll back environmental regulations and facilitate more drilling permits, benefiting not only energy giants like Exxon but also smaller companies tied to the oil and gas supply chain. Trump’s policies could also boost the profitability of coal companies and natural gas producers by opening up new areas for exploration.

Steel and Manufacturing: Made in USA

Nucor (NUE) and other U.S.-based manufacturers stand to gain from Trump’s pro-tariff stance. He has already hinted at reimposing a 10% tariff on all imported products, which would likely benefit American steelmakers by making foreign competition more expensive. Tariffs on Chinese and Brazilian steel, in particular, could lead to less price competition, increasing demand for domestically-produced steel.

This protectionist approach to trade could also extend to other manufacturing sectors, boosting companies involved in onshoring production and alleviating supply chain concerns. Industrial, robotics, and automation firms focused on domestic production -- like Rockwell Automation, Inc. (ROK), Teradyne, Inc. (TER), and Cognex Corporation (CGNX) -- could see a significant uptick in business as companies move supply chains back to North America.

Private Detention and Security: A Boost for Law and Order

A Trump presidency is expected to reignite his "law-and-order" platform. This would likely lead to an expansion in funding for law enforcement and the construction of new detention facilities. Companies like GEO Group (GEO), which operate Immigration and Customs Enforcement (ICE) and U.S. Marshals Service (USMS) detention centers, could benefit significantly from this policy.

Moreover, Axon Enterprise, Inc. (AXON), which manufactures weapons, vehicles, and systems for law enforcement, would also see a boost from Trump’s commitment to increasing domestic security and police funding.

Trump Media & Technology Group

Trump’s own Trump Media & Technology Group (TMTG), the parent company of Truth Social, could benefit from his return to the political spotlight. If Trump wins the presidency, his social media platform would likely see a surge in activity as both supporters and critics follow his statements and updates. This could lead to increased revenue from advertising and user engagement, with the platform becoming a focal point for political commentary in the U.S. and abroad.

Additionally, the possibility of foreign and domestic entities seeking favor with the Trump administration could generate significant investment in the platform, potentially boosting its valuation substantially.

Semiconductor Manufacturing: Securing Domestic Supply Chains

The COVID-19 pandemic highlighted vulnerabilities in global supply chains, and onshoring production has become a priority for many U.S. companies. Trump has long advocated for reducing dependence on China, and a second Trump term could accelerate efforts to bring manufacturing back to the U.S. and North America.

Small-cap companies in industrial sectors, robotics, and automation that focus on improving domestic production could benefit from this trend. Additionally, semiconductor stocks may thrive under a Trump presidency, particularly if his administration pushes Taiwan to pay for U.S. military protection. Trump has suggested that Taiwan’s dominance in the semiconductor industry gives it leverage over the U.S., and his policies could encourage further investments in domestic chip manufacturing.

With Trump in the White House, it becomes less likely that China will attack Taiwan. All companies that are clients of Taiwan Semiconductor Manufacturing Company (TSMC) will benefit from peace in the region, especially Apple Inc (AAPL), NVIDIA Corporation (NVDA), and Advanced Micro Devices Inc (AMD).

Sectors That Could Face Challenges Under a Donald Trump presidency

Green Energy: Loss of Subsidies Could Hurt Solar Stocks

Trump’s consistent skepticism of climate change and green energy policies puts the renewable energy sector at risk. Companies like Enphase Energy (ENPH), SolarEdge (SEDG), Sunrun (RUN), and Sunnova (NOVA) have benefited significantly from the Biden administration’s subsidies and incentives for solar and wind energy. A Trump presidency could see these subsidies rolled back, leading to lower revenues and growth prospects for these companies.

Big Tech: Antitrust Scrutiny Intensifies

The technology sector, particularly Big Tech firms like Meta (META) and Alphabet (GOOG), could face increased scrutiny under a Trump administration. His potential vice-presidential pick, Senator J.D. Vance (R-Ohio), has voiced support for stricter antitrust enforcement against major tech firms, citing concerns about their monopolistic power and influence on public discourse. More government oversight and potential regulatory actions could weigh on stock prices for these large tech companies, which have already seen increased sector rotation and regulatory pressure globally.

Conclusion

A potential Trump presidency could lead to a resurgence in sectors that benefited from his first term, particularly fossil fuels, steel, and financial institutions. His deregulation and pro-tariff policies are expected to favor American manufacturing and energy companies, while cryptocurrency and private detention firms stand to gain from his continued focus on law and order.

Trump's general approach to technology (including both crypto and big tech) seems to lean towards deregulation or at least a significant reduction in regulatory hurdles, aiming to foster innovation and business growth. However, his stance on antitrust issues might be more nuanced, balancing between market freedom and controlling monopolistic behaviors of Big Tech firms.

Our Trading Strategy

As far as we are concerned, the only issue regarding the U.S. Election is its integrity and the ability of both sides to agree on the winner. A peaceful transition of power benefits all.

Retail investors wishing to financially benefit from predicting the election outcome are better served by using a betting market (like polymarket.com) or agency - not the stock market as a proxy. The dollar transaction volume for predicting the winner is about $1 billion on polymarket.com, so it should cover a lot of retail positioning.

For managers of large institutions and hedge funds, 1 billion liquidity is far too little, however. They are the ones who will ultimately need to move the aforementioned stocks according to the winner’s policies. Meanwhile, we will be monitoring other types of risk.

Signal Sigma PRO members will be notified by Trade Alert of any live portfolio changes (if subscribed). If you’re not on this plan yet, you can get a free trial when you join our Society Forum. If you need any help with your trading strategy (or would like to implement one on your account), feel free to reach out!