10 Stock Market Implications If Joe Biden Wins the Election

It’s been a whirlwind year for the stock market. Many sectors are still struggling to cope. The adverse effects of the pandemic and the economic implications of lockdowns, impacted supply chains, and changes in consumer behaviors continue to leave a mark on company balance sheets. The fact that it’s also an election year has been a cause of mixed concern for investors, analysts, and CEOs alike.

As Democratic Party nominee Joe Biden continues to lead incumbent Republican President Donald Trump in the polls, more questions are coming to the forefront regarding what changes may happen in the stock market if the former vice president is elected. There are seven weeks still to go until Nov. 3, and if past elections have taught us anything, it’s that the final outcome is anyone’s guess.

These are 10 important possible implications for the stock market if Biden wins the presidency.

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It’s no secret that one of the hallmarks of Biden’s platform is his plan to combat climate change by leveraging clean energy solutions and diminishing U.S. dependence on fossil fuel.

Trump’s existing tariffs have had mixed results on certain sectors of the stock market. Companies that relied heavily on Chinese imports have struggled to maintain their competitive edge. One example where this struggle has been especially apparent is in the case of solar companies with overseas production. According to a report by the Solar Energy Industries Association from December 2019, “Tariffs on imported solar cells and modules have led to the loss of more than 62,000 U.S. jobs and $19 billion in new private sector investment.”

The Biden campaign has made it clear that the former vice president wouldn’t outright dispose of Trump’s tariffs. But his intention to reevaluate the existing approach to trade, coupled with his environmental policies, could have a positive domino effect on solar and other clean energy stocks struggling under the weight of current tariffs.

ALSO READ: Best Renewable Energy Stocks for 2020

Among the plethora of tax changes Biden wants to make -- and one of his most-discussed proposals --is his plan to hike the capital gains tax for certain high-income individuals. If elected, the former vice president intends to impose a 39.6% tax rate on long-term capital gains, as well as qualified dividends for individuals earning more than $1 million.

If Biden wins the election and implements these changes, it’s possible that high-net-worth individuals with significant stakes in the market could sell their holdings to avoid paying the new tax rate, causing stocks across all sectors to fall.

In an interview with CNBC published on Sept. 14, former hedge fund manager Michael Novogratz came to the same conclusion. However, Novogratz told CNBC that, in the long run, he believes the market will correct from any adverse impact of a higher capital gains tax and will emerge more resilient than before.

Biden’s plan to raise the corporate income tax from 21% up to 28% would inevitably result in lower earnings for companies across all sectors of the market, which means reduced payouts to shareholders in the form of dividends. A higher corporate rate could also cause a reduction in many companies’ earnings per share, driving down stock prices. If Biden wins and implements this aspect of his tax plan, companies with higher profit margins, solid cash flow, and low debt will be much better positioned to weather such changes than businesses with deficiencies in these areas.

It’s a point of much debate, but the concept that big tech is governed by weak regulation at best is not a new one. Last week, when tech stocks saw a mass sell-off several days in a row right around the time that new results were released showing Biden ahead of Trump in the polls, investors wondered if there was a correlation.

If Biden is elected, his plans for tax reform and, in particular, increased regulatory curbs could force companies in the tech space to make major changes in the way they operate. This also means that tech stocks could fall in a Biden presidency, at least in the short term.

ALSO READ: 3 Top Tech Stocks to Buy Right Now

Cannabis stocks, which have historically struggled due to mixed legalization and waning profits, could see a significant surge if Biden wins. Although federal legalization of marijuana is unlikely in the event of a Biden presidency, both he and vice presidential candidate Kamala Harris have discussed their intention to pursue decriminalization of marijuana possession. While states would be left to make their own laws regarding the full or partial legalization of cannabis, federal decriminalization would still be a huge step for companies across all facets of this industry.

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Infrastructure may be thought of as the less-talked-about, less-glamorous side of the market, but companies in this industry have remained stalwart despite 2020’s volatility. Biden’s proposal to “build a modern, sustainable infrastructure and an equitable clean energy future” would be great news for infrastructure stocks at the forefront of the “going green” revolution. Investors with a stake in this sector of the market could also enjoy substantial portfolio gains as environmentally friendly companies benefit from the Green New Deal.

Publicly traded health insurance companies could have much to gain if Biden wins, and so could their investors. Health insurance stocks are popular with investors for a variety of reasons, including their ongoing growth potential and often-impressive dividends.

The former vice president’s plan to expand the Affordable Care Act if he is elected would have a direct and positive impact on insurers that have built booming Obamacare businesses. Biden also strongly objects to the implementation of universal healthcare, which would otherwise severely threaten the core profitability of many health insurers.

Last month, the Biden-Sanders Unity Task Force released a lengthy document discussing recommendations for everything from managing climate concerns to building a more equitable economy. A number of these proposals would have both a direct and indirect impact on financial services and related institutions.

These include heightened regulation of student loan businesses and credit reporting companies, as well as tougher oversight of consumer lending and corporate consolidation. Such curbs coupled with the tax increases that Biden proposes could deliver a particular blow to the financial sector and the way it fundamentally operates.

ALSO READ: Best Financial Stocks to Buy in 2020

Biden’s stance on healthcare is a key aspect of his running platform, and it’s reasonable to expect that companies across in this industry could stand to gain significantly if he’s elected. Even though negotiating reduced Medicare drug prices is one of his major proposals, the Democratic presidential nominee’s plan to build on Obamacare would likely have a positive impact on pharmaceutical companies, biotechnology companies, biopharmaceutical companies, and others in the broader healthcare sector.

Historically, healthcare companies actually benefited from Obamacare, particularly as the law increased the scope of consumers able to secure prescription drug coverage.

Consumer stocks are another sector of the market that could see a less-than-favorable impact under Biden’s proposed tax increases. It's important to note, though, that these changes wouldn’t happen overnight. In another possible scenario, if Biden wins the presidency and the Republican Party maintains a majority foothold in the Senate, the road to sweeping tax and regulatory reform could be far more slow going with a lesser near-term impact on the wider financial markets.

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In many ways, history shows that the stock market is surprisingly impartial to political party affiliation.

In a July report released by McLean Asset Management, the firm cited these revealing statistics: “The average annual return for the S&P 500 index when we had a Republican President was 9.12%. When we had a Democratic President, the S&P 500 average [was] 14.94% per year. … When we break the returns down by specific Presidential tenures, Calvin Coolidge (a Republican) actually comes out with the best returns by an absolutely massive margin. ... The next closest was Ford (Republican, 8/74 – 12/76) at 18.44%. And then coming in third was Clinton (Democrat, 1/93 – 12/00) at 17.20% per year.”

McLean Asset Management’s report also found that, in general, the S&P 500 generates lower returns during presidential election years. At the time of this writing, the S&P 500 has returned just over 4% year to date, compounded by the ongoing COVID-19 pandemic.

When it comes to any presidential election, there’s simply no way to foretell the future and say with complete certainty what will happen to any sector of the market. Regardless of market conditions, you can manage your risk and maximize your returns by maintaining a long-term investing strategy; keeping your basket of investments diversified; and focusing on a mixture of resilient value, growth, and dividend stocks.

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